The concept of partnerships isn’t new in Ireland. It is a structure designed to be used by professions that are restricted by their professional associations from setting up limited companies. But there are some fundamental drawbacks to the partnership model, which is why it’s great to see legal firms adopting the recently introduced Limited Liability Partnership.
The reason for requiring two or more professionals to operate as a partnership is it stopped people hiding behind a company structure and made them liable for any professional mistakes they made, meaning clients could sue if things went wrong. One by one, professional associations have taken a hard look at this and are moving away from the model of personal responsibility, allowing practitioners to have adequate insurance instead. The customer remains protected – by mandatory professional indemnity (PI) insurance – but, for professionals, their personal assets are no longer on the line.
The legal profession has traditionally been restricted to using the partnership structure. Towards the end of 2019, the Legal Services Regulatory Authority (LSRA) introduced a framework to allow existing partnerships of solicitors to apply for authorisation to operate with limited liability.
For almost two decades, the Law Society has been urging the Government to introduce limited liability partnerships (LLPs) as an option for partnerships of solicitors in Ireland. More recently, in August 2018, we made a detailed submission, accompanied by a comprehensive set of draft regulations, to the Legal Services Regulatory Authority on LLPs to assist the authority in its preparation of draft regulations.Ken Murphy – Director General, Law Society of Ireland
In the case of solicitors, partners in the firm – and there could be a lot of them – are exposed to significant liability if just one of them does something wrong (whether intentionally or not). This is the legal concept of joint and several liability. It’s unwieldy and potentially unfair. So this move towards a limited liability model is a welcome modernisation.
Although this is a complex area and you will need to look carefully at your own situation to decide what the best arrangement is for you and your firm, here are some of the questions we are commonly asked about the Legal Limited Liability Partnership.
What is a Legal Limited Liability Partnership?
The form of LLP adopted for legal services is based on the US model. According to the Legal Services Regulation Act 2015, a ‘relevant business’ (a partnership of solicitors or a legal partnership) can apply to the Legal Services Regulatory Authority (LSRA) for authorisation to operate with limited liability. The authorisation to operate with limited liability does not create a new business entity; rather, it authorises existing partnerships of solicitors to limit their personal liability.
This means that existing law firms will not need to convert or change their legal form. An existing partnership becomes an LLP by virtue of successfully obtaining authorisation under the act. Also, there is no obligation on a newly authorised LLP to register the LLP with Companies Registration Office (CRO).
Who can register a Legal LLP?
Single solicitor practices cannot seek limited liability status – only firms with two or more partners can be authorised.
What obligations are there after becoming authorised?
A Legal LLP must use the suffix ‘limited liability partnership’ or the abbreviated ‘LLP’ in the partnership name. The practice must use the LLP partnership name on contracts, invoices, negotiable instruments, website(s), advertisements, and other documentation/publications.
As per the regulations, the firm must notify creditors and clients of the change, setting out specific information about how it is operating as an LLP law firm. This information should include the date it took effect; the extent to which debts, liabilities or obligations are now limited; and the acts that apply to the LLP.
The LSRA leaves it up to the company’s judgement whether “clients” should cover only currently active clients or could also include clients who have not engaged with the firm for a considerable period of time.
How to request authorisation for a Legal LLP
You must first request and then submit an official application form along with a fee of €175, with details of your partners and of PI cover. Requests can be made to email@example.com.
The LSRA register must be updated when partners join or resign, or if registration details change, or if the firm ceases to operate as an LLP Partnership.
An LLP is not a registered company, so there is no ‘Registered Office’ to nominate. Instead, your usual place of business will be the address associated with the LLP.
What liability is limited in an LLP?
In a properly authorised LLP, each partner will not be personally liable – directly or indirectly – for the debts, obligations, or liabilities arising “in contract, tort, or otherwise of:
- The LLP itself;
- Himself or herself;
- Another partner in that LLP;
- Or any employee, agent or representative of that LLP.”
Typically, exceptions to limited liability status include where the relevant debt, obligation, or liability arises from an act or omission of a partner which involves fraud or dishonesty, and which was either the subject of a finding of misconduct or a criminal conviction or where the liability was incurred by a partner for a purpose that is not related to the business of the LLP.
What are the compliance and tax considerations of an LLP?
Legal Limited Liability Partnerships are not companies, so they are not registered with CRO but on the LSRA’s Register of Limited Liability Partnerships.
LLPs must produce and publish yearly financial accounts with a similar level of detail to a limited company, submitting annual returns to the Law Society and tax returns to Revenue. An LLP is not subject to corporation tax. Instead, it is the partners who must include their profit share from the partnership in their personal income tax returns (along with any other income they have).
Legal LLPs are new in Ireland, so the rules are still being ironed out. We have questions about LLPs that there don’t seem to be answers to yet, so we expect that the situation will evolve and clarifications will be issued by the LRSA as queries arise. In the meantime, this booklet from September 2020 (PDF) has further information.