The legislation for establishing limited liability partnerships (LLPs) in the UK was announced in the Queen’s Speech on 17 November and has now been introduced to Parliament.
After months of waiting, it seems certain that UK LLPs will be in place by the end of 2000 or early 2001. While the draft legislation and regulations contained matters that still need to be ironed out, the Department of Trade and Industry (DTI) and the tax authorities appear to be taking a very positive attitude and the few remaining defects in the draft legislation should be overcome.
The news is a major step forward in the development of a new and very helpful business structure for professional practices. It will help allay fears that major law firms operating in the UK could be forced to register outside the country. But the announcement may be too late to prevent the largest firm of solicitors reportedly becoming a US LLP, despite being dominated by UK partners.
Increasing interest in LLP status among the legal profession is clearly demonstrated by Smith & Williamson’s most recent annual survey of professional firms. Of the firms surveyed, 37% said they were currently considering ways to limit their liability, compared to only 31% in 1998. Of these, nearly 90% saw LLPs as a possible or likely route. This compares to 66% last year. By contrast, incorporation or an increase in professional indemnity cover were seen as less likely options. So what are the issues that firms need to consider in deciding whether or not to convert to an LLP when they are able to?
Why convert?
The principal and, in some cases, overwhelming reason why firms might choose to become LLPs is protection from so-called ‘Armageddon’ legal claims. When a £600m writ arrives at their office as a result of some act by one of their partners, most partners will probably prefer to be in an LLP rather than an ordinary partnership.
Firms will need to analyse the type of work they carry out and the risks attached. They will have to look at the potential liabilities that may arise as a result of that work and take a view on the adequacy or otherwise of the professional indemnity insurance that is available.
