The authoritative annual snapshot of the legal profession in England and Wales shows a dip in both the number of firms and private practitioners.
The Law Society's Annual Statistical Report, published today, also shows the number of admissions and training contracts down to the lowest level since 1999.
According to the report, the number of practising certificate (PC) holders linked to a named organisation on 31 July 2012 increased by just 0.25% on the same date the previous year - the smallest increase since 1996.
The number of PC holders working in private practice in firms stands at 87,768 in 2012 compared with 87,973 in 2011. The figures contrast sharply with previous trends. Overall, since 1982, the total number of practising certificate holders increased by 208.5%, an average annual rate of 3.8%.
The 2012 report shows that the number of private practice firms was static, at 10,201, compared with 10,202 in 2011.
Growth areas are commerce and industry, and employment in foreign law practices. However private firms in England and Wales remain the dominant providers of training.
Desmond Hudson, Law Society chief executive, said: 'There is fiercer competition in the legal market than ever before and many of the assumptions that have underpinned the nature and status of practising as a lawyer are being challenged in this difficult environment.
'Tough economic conditions combined with legal services liberalisation, changes to legal aid funding and the civil costs regime are having a major impact on the business models of many firms.'