An analysis of Companies House data has revealed a quarter of new businesses in the legal services sector fail to make it past their first five years.
Witan Solicitors examined the number of businesses in the legal industry incorporated between January 2021 and December 2025 and compared it to the number that have since entered administration, liquidation or been dissolved.
Of the 13,229 new established legal businesses over the five-year period, 3,572 (27%) are no longer in operation.
“The legal market is at a real turning point right now,” said Qarrar Somji, director of Witan.
“To survive today, you need more than just legal expertise. You need serious business grit. Many new firms hit a wall because they get buried under regulatory and cost pressures. The traditional high street model is being diluted, and being the ‘local’ solicitor isn’t the competitive advantage it used to be.
“Not to mention, we are seeing a decline in sole practitioners, with many lawyers moving toward ‘fee-share’ or consultant models instead. This makes sense given that these models provide a bit of protection from the rising costs of running a practice. Plus, private equity is moving in, and investors are buying up and consolidating smaller firms.
“Even the established players are feeling the heat. In the past couple of years, we’ve seen multi-million-pound practices enter administration. While top-line earnings may be growing, rising costs like National Insurance and professional indemnity insurance are eating into profit margins.”
Witan’s research also identified which types of legal service businesses struggle the most. New firms dealing with justice and judicial activities faced the highest business mortality rate, with 46% ceasing operations within the time period analysed.
Barristers had a similar failure rate, at 44%, while solicitors were the most successful, with 22% of the firms established since 2021 subsequently closing their doors.
However, all firms are susceptible to technological advances, Somji warned, with investment costs of increasingly standard AI technology meaning new firms are struggling to keep up with industry norms.
“AI is changing the game,” Witan said. “Some of the biggest firms are already planning to cut back office and junior roles, claiming that automation can handle the early-stage work. But tech costs, and many smaller firms do not have the cash flow to cover this investment.
“Understandably, for a new firm, it can feel like you’re being squeezed from every side. Without a clear niche or a plan for this new tech-heavy world, the gap between making a profit and going under just keeps getting wider.”
