An LDP ‘manager’ is the new name for a partner in a partnership (or a member in an LLP, or a director in a company). Non-lawyers can be ‘managers’ provided they do not make up more than 25% of the ownership and management (ie 75% of ‘management and control’ must be in the hands of lawyers – which can include licensed conveyancers, legal executives, notaries, patent and trade mark agents, and law costs draftsmen but not (yet) barristers).

The 25% restriction on non-lawyers means small firms are excluded (ie a two-partner firm cannot take on a non-lawyer partner as the 75% lawyer-manager requirement would not be met). Note that the 25% maximum for non-lawyers cannot be side-stepped (the Law Society has made it clear that SRA ‘will take a dim view of complex voting arrangements employed to provide non-lawyer managers with, effectively, a greater share of the ownership of the practice’).

Non-lawyers cannot simply be investors in LDPs. They must also be managers (pure investment from outside will not be allowed until the Alternative Business Structure rules come into place in 2011 or 2012). Note also that whilst 75% must be ‘lawyers’, there must always be at least one manager to be a solicitor with a current practising certificate.

They are important rules on changes to structures of LDPs. If those changes result in non-lawyers being more than 25% of the managers (or having more than a 25% stake in the firm) then there is a 28-day period to remedy the situation. This is likely to cause major problems for small firms (eg suppose a four-partner firm has one non-lawyer partner, and then one lawyer partner dies or leaves the firm – the firm will quickly have to replace that lawyer partner or de-equitise the non-lawyer partner). Some firms are considering including a clause in the non-lawyer partner’s contract, allowing the lawyer managers the option to require such individuals to cease being a manager in the event that the regulatory requirements will be breached.

So far, there has been no great enthusiasm for LDPs. But, it is worth remembering that firms of two partners or less are excluded (see above) and the profession is in a recession (with declining fee incomes, few firms are looking to appoint new partners). However, the likelihood is that LDPs will become increasingly important and it would be a delusion to think otherwise. Note also that when the ABS rules arrive, LDPs with non-lawyer managers will be required to convert to an ABS (ie from that time, only LDPs with 100% lawyers as managers will be able to continue as LDPs). Firms that are planning to become an ABS, so as to attract outside investment, should consider acting now to be able to demonstrate to potential investors that they run a well-managed practice, committed to high standards of service and which is compliant with the Code of Conduct. Conversion now to an LDP, which will have a proven track record by 2011 or 2012, may well help that process.