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Slow train coming

Irish law firms can, at last, operate as limited liability partnerships (LLPs). Significantly, partners in LLPs will not be personally liable for all partnership debts.

Various forms of LLPs have been available internationally for years. The provisions in the Legal Services Regulation Act 2015, likewise, will allow Irish law firms to reduce partners’ personal exposure.

LLP partners are not personally liable for the firm’s liabilities just because they are a partner – but may they still may be held liable for fraud, misconduct or criminality.

Clients remain protected by mandatory professional indemnity (PI) insurance, and by the Law Society Compensation Fund. Law Society leaders have sought this reform for decades.

Demand for change came from large and small firms – including the complaint that sole practitioners were reluctant to form partnerships because of the risk of personal liability for other partners’ actions. Recent justice ministers accepted the need for reform.

Booklet

A helpful booklet on the Legal Services Regulatory Authority (LSRA) website sets out how to become an LLP. The process is straightforward. Partnerships need not constitute themselves. You must first request and then submit an official application form, a fee (€175), with details of your partners and of PI cover, etc.

The form should be completed by a partner and returned by post or email. A decision must be issued by the LSRA within 60 days of the submission of an application.

(You can request the application form by emailing lsra-limitedpartnerships@lsra.ie or by writing to Limited Liability Partnerships; Registration, Levy and Fees Unit; Legal Services Regulatory Authority; PO box 12906, Dublin 2.)

The LSRA will also give you a unique application reference number. This is essential to allow the LSRA to ensure that the form and payment have been received.

The LSRA will also issue an electronic funds transfer (EFT) form to allow it to confirm payment, which should be made by EFT, citing the reference number. Once the LSRA receives a duly completed application and payment, it will email an acknowledging receipt.

Obligations

The LLP must use either the expression ‘limited liability partnership’ or the abbreviation ‘LLP’ in the partnership name. This name must be used on all contracts, invoices, negotiable instruments, orders for goods and services, advertisements, websites, or other publications published in any format by or for the LLP.

The LLP must update the LSRA register as partners come and go, if the firm ceases being an LLP, or if registration details change.

In addition, the firm must notify creditors and clients that it has become an LLP, setting out prescribed information in accordance with the regulations. Creditors may include a firm’s bank, landlord, pension-fund trustees, employees and trade creditors. Information to be provided includes:

• That the firm has been authorised to operate, and is operating, as an LLP and the date from which it has become an LLP,
• That, as of that date, as set out in section 123 of the 2015 act (and subject to the exceptions therein), a partner in the LLP has no personal liability for any debts, liabilities or obligations incurred for the purpose of carrying on the business of the LLP (whether these are liabilities of the LLP, of himself or herself, of another partner or partners in the LLP, or of any employee, agent or representative) and however such liability may arise,
• That this relates only to the personal liability of partners, and does not prevent or restrict the enforcement against the property of the LLP of any debt, liability or obligation, and
• That the Partnership Act 1890 still applies to the LLP, to the extent that it is not inconsistent with the 2015 act.

PI insurance

The firm must have mandatory PI insurance in place – if it fails to maintain such insurance, its authorisation to operate as an LLP is deemed revoked.

Partnerships only?

Although successive ministers for justice acknowledged the need for reform, the provisions for LLPs were only made available as the Legal Services Regulation Act was finally being enacted. The provisions allowed partnerships to become LLPs, effectively amending the ‘joint-and-several’ rule of partnership law. This ensures that LLP partners are no longer personally exposed as a result of catastrophic claims against the firm. 

Sole practitioners?

The Law Society strongly advocates the position that sole practitioners should also be able to avail of such protections. The Society’s Council has unanimously agreed that the Society should prioritise seeking protections for sole practitioners. It is exploring possible models, with a view to making representations to the LSRA and the Minister for Justice at the earliest opportunity.

While, by definition, sole practitioners do not face the hazard of claims caused by other partners, they remain personally exposed to any liabilities of their own practice. While the Society will be campaigning for further reforms, there are practical steps that sole practitioners can take to reduce their exposure in the meantime:

• They should ensure they have adequate PI insurance. They should take appropriate advice as to whether – given the nature of their practice, its size, the type of work it does, etc – they need to obtain cover above and beyond the mandatory minimum.
• They should ensure that every letter of engagement clearly sets out the scope of the work that the solicitor is to undertake, and also indicates work excluded from that scope – avoiding any misunderstanding as to whether, for example, the solicitor was required to advise on the tax implications of a proposed transaction.
• The sole practitioner can significantly improve his or her position by limiting liability in the letter of engagement, in accordance with section 44 of the Civil Law (Miscellaneous Provisions) Act 2008 and section 48 of the 2015 act. Liability may not be limited to an amount less than the minimum PI requirement (currently €1,500,000). 

Partnerships with barristers

Separate provisions for legal partnerships (LPs) – partnerships between solicitors and barristers, or between barristers themselves – have yet to be commenced. Once commenced, it will be possible for a firm to be both an LP and an LLP.