Accounts: companies that want to cross-charge legal services should consider ABS option
A number of companies are looking at registering their legal departments as alternative business structures (ABSs) in a bid to turn their in-house function into profit centres, it has been claimed.
However, according to legal publisher LexisNexis, while some companies are keen on turning their in-house functions into ABSs, issues such as competition, complexity of structure and administration burdens need to be addressed.
Likewise, the standing of legal professional privilege (LPP) is unclear.
LexisNexis has been working on the impact of the new regulatory regime on in-house lawyers with its in-house advisory panel, and recently interviewed Bruce Macmillan, general counsel of the Legal Services Board.
Mr Macmillan said the pros and cons of becoming an ABS were the same: setting up a law firm. It offered opportunities for in-house counsel to expand their range of services and deal with any privilege issues, among other benefits, but there was also “a higher compliance duty”.
An accompanying LexisNexis guide for in-house counsel said there are various circumstances where companies should consider structuring their legal teams as ABSs:
- If the company’s accountants do, or wish to, cross charge the provision of legal services from the employing company to other group companies, joint venture partner companies or trade associations, “then you may need to think carefully about whether your department needs to become an ABS”.
- If the department is involved in a lot of work where LPP is important (possibly including EU competition law), “then you might find that there is value in having your law department established as a law firm within your corporate group”.
- Structuring as an ABS may allow in-house counsel to create a shared service centre with other non-competing entities for certain legal functions (in the way that is becoming prevalent in local government).
- Businesses already offering services to customers could make legal services a part of this package. “The legal department could proactively add value to the business through suggesting this now.”
- Becoming an ABS could be a necessary step to ensure regulatory compliance if the department is revenue generating, holding client money, undertaking reserved legal activities pro bono, or engaged in debt recovery.
Though in the UK companies can claim legal professional privilege in relation to the work of their in-house legal teams, this is not the case everywhere in the Europe and also does not apply in the face of European Commission competition investigations. Further, as we reported last week, the Law Society is concerned that the position in Europe could deteriorate.
“At the moment, the situation regarding legal privilege and ABS structures is unclear,” said Laura Spooner from the practice compliance team at LexisNexis. “Everyone is waiting for the verdict in the Prudential case. While that does not directly touch on an ABS structure, it should clarify the issue to some extent.”
