How UK Law Firm Structures Shifted from Partnership to Incorporated, 2011 to 2026

Two Datasets, Two Different Questions

Before looking at the numbers, it is important to understand what each data source actually measures. The two series used in this analysis answer different questions, and conflating them produces a misleading picture.

The SRA Regulated Community Statistics measure the stock of regulated law firms at a point in time, broken down by legal structure. These figures show what the existing firm base looks like today and how it has changed year on year. They capture firms that formed in any year and are still operating.^[1]

The Companies House incorporation series measures the flow of new companies registered each month under SIC codes for legal activities (69101, 69102, and 69109). These figures show how many new entities are being created right now and in what form. They do not show the full firm base, only new additions to it.^[2]

There is also a known gap in the Companies House series: law firm LLPs rarely file a SIC code on incorporation, so the Companies House API returns near-zero LLP hits for legal SIC codes in most monthly windows. For that reason, the LLP share of the firm base is taken entirely from SRA data, which registers all regulated entities regardless of filing behaviour. Our full methodology is set out in the UK Legal Incorporation Index.

The Stock: How the Existing Firm Base Has Changed, 2011 to 2026

The SRA data covers July snapshots from 2010 onwards. The figures below use July 2011 as the baseline, because 2011 was the last year in which the traditional partnership was the largest single category by share. By 2013, incorporated companies had already overtaken partnerships. By 2026, the gap had widened to the point where the incorporated share was nearly six times the partnership share.

Year (SRA snapshot)	Incorporated (%)	LLP (%)	Partnership (%)	Sole practitioner (%)	Total regulated firms
2011 (July)	22	13	30	33	10,867
2013 (July)	29	14	26	30	10,866
2015 (July)	36	15	22	27	10,412
2018 (July)	45	15	16	23	10,415
2021 (July)	51	15	14	20	9,943
2024 (July)	56	16	11	16	9,301
2026 (June)	59	16	10	15	8,916

Source: Solicitors Regulation Authority, Regulated Community Statistics. Aggregate data used under SRA custom licence; no named-firm data cited.^[1]

In absolute numbers, incorporated firms rose from 2,400 in July 2011 to 5,234 in June 2026. Over the same period, traditional partnerships fell from 3,309 to 906 and sole practitioners from 3,640 to 1,327. The LLP count was comparatively stable in absolute terms: 1,398 in 2011 and 1,421 in 2026, but its share rose slightly from 13% to 16% because the total firm count contracted.

The total number of regulated firms fell from 10,867 to 8,916 across the period, a contraction of around 18%. This reflects consolidation through mergers and closures rather than a shrinking legal market. The fall is concentrated in the unincorporated categories.

The Flow: New Firm Formation Since 2015

The Companies House series covers new legal-sector company registrations from January 2015 to June 2026. It captures limited companies (Ltd) only, because LLP formations under legal SIC codes are not reliably returned by the Companies House advanced search API for the data-gap reason explained above.

In the trailing 12 months to June 2026, 2,645 new legal-sector companies were registered under SIC codes 69101, 69102, and 69109. Of those, 2,606 were limited companies, giving an Ltd share of 98.5%. The monthly figures have been stable at this level since 2015, with Ltd shares ranging from 95.5% to 100% in individual months.

This means that when a new law firm is being created today, it is formed as a limited company in approximately 99 cases out of 100. The partnership and sole trader are still operational legal structures for regulated firms, but they are almost never the structure chosen for a new practice. The annual Companies House totals confirm consistent volume: 2,302 new companies in 2015, rising to 2,607 in 2025, with 2,645 in the trailing 12 months to June 2026 (a 13.2% increase on the 2015 baseline).^[2]

Taken together, the two series tell a consistent story. The existing firm base has structurally shifted towards incorporation over 15 years, and the new-formation pipeline confirms that the shift is self-reinforcing.

What Drove the Shift

The Legal Services Act 2007 and ABS

The Legal Services Act 2007 created Alternative Business Structures, which became operational from October 2011. ABS allows non-solicitor ownership of law firms. The incorporated company is the preferred vehicle for external investment and non-solicitor ownership, because it has a clear share structure, defined governance under the Companies Act 2006, and familiar due-diligence pathways for investors. LLPs and partnerships do not fit the conventional investor framework as cleanly.

The arrival of ABS accelerated a trend that was already under way. Incorporated firms were growing as a share of the SRA base even before 2012, but the pace of conversion quickened after ABS became available.

Corporation Tax Rates and Profit Extraction

In the decade after 2010, the main rate of corporation tax fell from 28% to 19%, while the additional rate of income tax remained at 45% and dividend tax rates were broadly lower than income tax rates on equivalent amounts. For firm owners extracting profits primarily as dividends from a company they controlled, the arithmetic favoured the incorporated structure.

The position became more nuanced after April 2023, when the corporation tax main rate rose to 25% for profits above £250,000 (with marginal relief between £50,000 and £250,000). For high-profit firms, the combined burden of 25% corporation tax plus dividend tax may now be comparable to, or exceed, the income tax plus Class 4 NIC burden on a partner's profit share. The decision is no longer straightforwardly in favour of incorporation; it depends on profit levels and extraction strategy.

From April 2026, the Finance Act 2026 increased dividend tax rates to 10.75%, 35.75%, and 39.35% for basic, higher, and additional rate taxpayers respectively. This further narrows the advantage of incorporated profit extraction at higher income levels.

Limited Liability Without LLP Complexity

An incorporated company provides the same limited liability as an LLP but without the Salaried Member Rules. For small firms with fixed-pay directors who are also shareholders, the company structure avoids the risk of PAYE reclassification that arises under the FA 2014 rules for LLP members who satisfy all three conditions (fixed reward, limited influence, insufficient capital).

A sole practitioner who previously operated as a traditional partnership or sole trader, carrying unlimited personal liability, can incorporate and obtain the same liability shield that an LLP provides, without the additional administrative cost of LLP-specific registration and without any exposure to salaried-member analysis. This is a straightforward driver for the increase in incorporated sole-practice vehicles.

The Tax Mechanics: What Structure Actually Means

Traditional Partnership

A traditional partnership under the Partnership Act 1890 is tax-transparent. Each partner is assessed to income tax on their profit share under ITTOIA 2005, and files a self-assessment return. The firm files an SA800 partnership return. Partners pay Class 4 NICs on their trading income. There is no corporation tax. Profits are allocated according to the partnership deed, and the self-assessment position follows automatically.

Critically, all partners in a traditional partnership are self-employed for tax purposes. The Salaried Member Rules do not apply. There is no risk of PAYE reclassification. The trade-off is unlimited joint and several liability for firm debts, including professional negligence claims that exceed PII cover.

For a detailed analysis of partnership tax mechanics, see our law firm partnership tax guide.

LLP

An LLP is also tax-transparent. Members file self-assessment returns on their profit share, and the LLP files an SA800. The liability protection is equivalent to a limited company: members are not personally liable for LLP debts beyond their agreed capital contribution.

The key difference from a traditional partnership is the Salaried Member Rules. Under FA 2014, an LLP member who meets all three conditions (fixed reward of at least 80% of total remuneration, limited influence, insufficient capital contribution) is reclassified as an employee for NICs and income tax. The LLP then pays employer NICs at 15% on their drawings. This can substantially increase the cost of retaining fixed-share or salaried partners compared to a traditional partnership where the same person would be self-employed.

The LLP share of the firm base has stayed broadly flat in absolute terms (1,398 in 2011, 1,421 in 2026), which suggests that LLP formation is continuing at a pace that offsets closures, but without strong growth. The structure remains common among mid-size multi-partner firms where the liability protection is valued and the equity partners have genuine variable profit shares that keep them outside the salaried-member conditions.

For the detail on salaried member analysis, see our guide to the salaried member rules for UK LLPs.

Incorporated Company (Ltd)

An incorporated law firm pays corporation tax on its profits. The current main rate is 25% for profits above £250,000. Partners become directors and typically shareholders. They extract income through a combination of salary (subject to PAYE and NICs), dividends (taxed at lower rates than salary, but with no NIC deduction for the company), and where appropriate, directors' loan accounts.

Dividends in 2026/27 are taxed at 10.75% (basic rate band), 35.75% (higher rate), and 39.35% (additional rate) under Finance Act 2026. The dividend allowance is currently £500 per annum.

The combined corporation tax plus dividend extraction path may still produce a lower overall tax burden than income tax plus Class 4 NICs on an equivalent partnership profit share, but the margin has narrowed compared to the 2017-2022 period. At profits above £100,000 per director-shareholder, detailed modelling is needed before concluding that incorporation saves tax. It often still does, but the gap is smaller than it was.

For the interaction between corporate member structures and LLPs, see our guide to corporate member rules in law firm LLPs.

Profit Extraction Compared Across Structures

The practical question for a partner weighing structure is not which structure pays less tax in the abstract, but which produces the best after-tax position given their specific profit level, extraction strategy, and personal circumstances.

• Partnership or LLP (equity): Full profit share taxed as trading income at 20%, 40%, or 45% plus Class 4 NICs (9% on profits between £12,570 and £50,270, 2% above). Basis period reform from 2024/25 means profits are now assessed on a tax-year basis rather than the accounting-year basis. No planning around dividend timing is possible.
• LLP (fixed-share member): If all three salaried-member conditions apply, the member is an employee. Earnings attract PAYE at the usual rates and employer NICs at 15% (from April 2025), with the secondary threshold at £5,000 per year. The LLP absorbs the employer NIC as a cost. This is structurally more expensive than the equity-partner position in most cases.
• Ltd company (director-shareholder): Salary up to the secondary NIC threshold (£5,000 from April 2025) takes advantage of the personal allowance with minimal NIC cost. Remaining profits extracted as dividends at dividend tax rates. Directors' loan accounts can provide short-term working capital flexibility but must be repaid or cleared within nine months of the year end to avoid s.455 tax.

There is no universal right answer. The structure decision should be modelled on actual projected profits and extraction requirements before any conversion is undertaken. See our services page for LLP accounts and structure advice.

The LLP Anomaly in the Companies House Data

One feature of this dataset deserves explicit explanation because it affects how the numbers should be read.

Law firm LLPs formed at Companies House rarely file a SIC code at the point of incorporation. The Companies House advanced search API can filter by both company type (LLP) and SIC code, but combining these filters for legal SIC codes (69101, 69102, 69109) returns near-zero hits in almost all monthly windows. This is not because LLPs are not being formed; the SRA base shows 1,421 LLPs regulated as at June 2026. It is because LLPs do not complete the SIC field on their incorporation paperwork in the way that companies (Ltd) do.

As a result, the Companies House flow series in this analysis covers Ltd formations only. The LLP share of the existing regulated firm base (16% as of June 2026) is drawn entirely from SRA data. Anyone attempting to use Companies House SIC-filtered data to estimate LLP formation volumes will systematically under-count, and this under-count is not correctable from the Companies House API alone.

The full dataset and methodology note are available at the UK Legal Incorporation Index.

What This Means if You Are Weighing Structure Now

The structural shift documented in this data is not simply a tax story, though tax is a significant driver. It reflects a broader change in how law firms are conceived, owned, and governed. Partners who formed practices in the 1990s and early 2000s chose from a narrower menu; today's sole practitioner or small-firm founder defaults to incorporation almost automatically.

If you are reviewing your firm's structure, the key questions are:

• Liability: All incorporated and LLP structures provide limited liability. A traditional partnership does not. If your firm handles significant client money or high-value transactions, the partnership structure leaves partners personally exposed to claims exceeding PII cover.
• Tax on profit: At equity-partner level, LLP and traditional partnership produce similar income tax outcomes. The incorporated company introduces the corporation tax and dividend extraction path, which may save tax at lower and middle profit levels but is less decisive at higher profit levels after the rate changes of 2023 and 2026.
• Fixed-pay staff and partners: If your firm has fixed-share members or salaried partners, the LLP structure requires annual salaried-member analysis. The incorporated structure avoids this entirely; fixed-pay directors are employees, and the question of PAYE reclassification does not arise separately from their employment status.
• External investment or sale: The incorporated company is the preferred vehicle for ABS ownership, external investment, or eventual sale to a consolidator. If a trade sale is within the medium-term horizon, the structure decision should be made with this in mind.
• Succession: The LLP's separate legal personality makes member admission and retirement administratively simpler than a traditional partnership, where structural continuity depends on the deed. An incorporated company is similar.

For most new practices and for sole practitioners incorporating for the first time, the Ltd company is the natural choice and the data confirm this is the route almost universally taken. For existing multi-partner firms, the question of whether to retain an LLP or convert to an incorporated structure requires careful analysis of the specific profit levels, extraction strategies, and any goodwill or capital gain that would crystallise on conversion.

For a related discussion of how LLP and partnership structures compare in detail, see our article on LLP vs traditional partnership for UK law firms and our guide to service company structures for law firms.

Sources

1. Solicitors Regulation Authority, Regulated Community Statistics: Solicitor Firms. Aggregate data, used under SRA custom licence; no named-firm data cited. Available at: sra.org.uk. Accessed July 2026.
2. Companies House, Advanced Search API (company_type=ltd, SIC codes 69101, 69102, 69109). Crown copyright, Open Government Licence v3.0. Available at: nationalarchives.gov.uk/doc/open-government-licence/version/3/. Data series January 2015 to June 2026. Accessed July 2026. Note: LLP formations are not returned by SIC-filtered queries and are excluded from the Companies House series; see SRA data for LLP firm counts.
3. Accounts for Lawyers Editorial Team, UK Legal Incorporation Index. Available at: /research/uk-legal-incorporation-index. Data through June 2026.