The Legal Services Board (LSB) has outlined plans to impose financial penalties of up to £150m for licensing breaches by Alternative Business Structures (ABS).

In a consultation launched in late December last year, the LSB recommended that the maximum financial penalty for ABS entities should be set at £150m and £50m for individuals.

The consultation followed discussions in November 2009 when the LSB proposed that licensing authorities (LA) should be able to impose unlimited fines. However, the Ministry of Justice said that the wording of the Legal Services Act did not permit this.

The legal regulator overseer has also decided against penalties relating to a percentage of turnover, citing that it could be too easily contested and too difficult to apply when fining individuals.

The paper argues: "A high maximum level gives an LA the flexibility to exercise its discretion and judgement in setting a penalty in a way that enables it to take into account the likely wide variation in the outcomes of investigations that it will encounter."

In determining a maximum penalty the LSB has said that it has taken into consideration the size of firms currently in the market, potential entrants to the market, the deterrence effect of penalties and the size of penalties imposed by other regulators.

It said: "We are aware that the amounts proposed are large. We consider that these will have strong deterrence in the market and avoid situations where any entity or individual may consider 'pricing in' non-compliance."

The consultation will close on 24 January, at which point the Lord Chancellor must give his consent before the rules can be implemented.

The ABS model – often dubbed Tesco law – will allow companies to invest in law firms and provide legal services outside of traditional partnerships.