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Limited Liability Partnerships (LLPs) have been long-awaited by many in the legal profession; 37 percent are considering making the change, according to a survey by legal accountants Smith & Williamson. As the legislative process nears its conclusion, the arrival of this utility is drawing near. The next stage, applying Companies and Insolvency Acts regulations, is due in October, and the first English LLPs can be expected some time next year. Conversion to LLP status will be a massive overhaul for law firms. For those exposed to high-risk, limitation will be a huge relief; the fearful specter of Binder Hamlyn — the accountancy firm on the wrong end of a $165.2 million (�110 million) High Court payout in the mid-1990s — has too long kept many a professional partner awake at night. Explains Colin Ives, tax and professional practices partner at London-based Smith & Williamson, “The LLP prevents Armageddon — it’s a way of legislating for the worst-case scenario, where a firm of 500 could be brought down by a single mistake. “We’ve long moved on from the days of the 20 partner-maximum firm, and at last the Act adjusts legislation accordingly.” There may also be possible financial benefits. Some speculate that LLP status can be used as a way of avoiding such wearisome tax obligations as stamp duty. There is even the possibility of LLPs finding their way onto the stock exchange. But those bracing themselves for a stampede should be warned. The Act requires LLPs to make detailed disclosures for a “true and fair” view of firm accounts: total drawings, highest partner earnings, and number of partners will now be public knowledge. Firm hierarchies can be expected to change. The collective partnership will be replaced by the conventional business pyramid. And do not think Limited is unlimited. Members can be sued for wrongful or fraudulent trading, just like company directors. There is even the threat of outright disqualification. So how many firms will want to go down the LLP road — or is this really a utility only for the big-risk, big firm? Is the privacy price worth paying? And will LLPs have the taxation edge? Not everyone has waited for Westminster legislation to find out. The LLP now exists in Scotland (in a rather different format), and new firm Semple Kennedy has been created to be the first to touch their toes in north of the border tax-avoidance waters. Clifford Chance found a wormhole in liability space when it merged with U.S. firm Rogers & Wells earlier this year. LLP status has long existed in the U.S., and 700 American lawyers were certainly not going to expose themselves in a hurry when the two came together. Hence, Clifford Chance Rogers & Wells now technically resides in New York jurisdiction, and, as far as the new firm is concerned, that covers matters for the U.K., as well (although this has yet to be tested in practice). The London side has an understandable interest in liability. In 1994 Clifford Chance was hit by a claim from Canadian banks of $916.2 million (�610 million) in relation to London’s Canary Wharf. The eventual settlement is thought to have been $15 million (�10 million) plus costs. If the threat of modern business risks needed to be confirmed, it came in the shape of a more than $81 million (�54 million) breach of contract writ from the Chinese Guandong province power station consortium. LLP COMFORT Richard Thomas, Clifford Chance’s director of public policy, says, “All partners now derive comfort from LLP status. “As for the Act, we were very heavily involved in preparing the case for legislation, and we’re very pleased the bill has got Royal Assent. “For Clifford Chance Rogers & Wells it’s come a little late, but we’re pleased to see legislation provides for international LLPs.” CCR & W will have the edge over U.K. jurisdiction LLPs; U.S. firms are not subject to the disclosure obligations outlined in the Act. Some worry that the government is creating an unequal playing field. International firms will be privy to U.K. firms’ information, without any reciprocal arrangement. The U.K. Department of Trade and Industry has made noises about equalizing the situation, but no definite timeframe has been set. Even if the international issue is addressed, many British lawyers are unhappy about the prospect of opening up their books. Ronnie Fox is senior partner of Fox Williams, to whom many firms will be turning for partnership expertise. “Our advice will depend on a firm’s attitude to risk,” says Fox. “But I wonder how professional firms will feel about disclosure: these are private matters. It’ll make a lot of firms think once, twice and three times about converting to LLP status.” Fox Williams are adopting a ‘wait and see’ approach for their own future. “I expect small and medium firms will wait for others to pick up the running. For big firms with proportionately big risks it makes sense. “Many of those big firms already have in place the kind of business management structures required by LLPs that would disrupt partnerships of our kind of size.” “I don’t want us to be a pioneer in the field; LLP status would happen at a high privacy price.” However, there are those who argue financial disclosure could benefit the profession. Openness would improve the poor public perception of lawyers. In any event, surveys and legal journalism have already brought much of this information into media currency. And not everyone would want to avoid ‘fat cat lawyer’ perception. An under-achieving firm might attempt to massage upwards its top partner-earning figure to save face in the professional community. As for tax advantages, the financial benefits of LLPs have yet to be defined. Says Ives, “There’s no guarantee of tax benefits. Anti-avoidance rules are promised, but the Inland Revenue has yet to say exactly what’s going to happen. While new legislation is waiting to come in, it will make sense to maximize efficiency — say, with stamp duty — until such time as it’s not possible. “The beauty of the LLP is how it enables you to carry on as if you were a partnership for tax purposes, so, for example, there’s no obligation to pay employer National Insurance. But tax avoidance isn’t the issue. “What’s crucial is that, without LLPs, firms would have had to hive off high-risk involvements to limited companies, risking the wrath of Law Society rules. “The LLP is a modern business utility for which there’s been a desperate need. Major transaction people will go for it.”

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