Limited Liability Partnerships
Recently, our law office moved from the historic Market Square building at Talbot and Robinson, down the street to a less historic but no less important building in Simcoes history, being the former Public Library. As a lifelong resident of Simcoe (until recently) my personal connection to both buildings goes back many, many years.
Along with the planning for the move, and an ever increasing partnership, it was time to review our status as a law firm partnership.
Businesses are normally carried on in three different legal formats. An individual can own and operate a business as a sole proprietorship. Two or more people can join together to form a partnership. One person or more may form a corporation.
Partnerships are governed by the Partnerships Act in Ontario, which, until recently, deemed that partners are liable both in their personal capacity and jointly with all other partners for the liabilities of the partnership. Partners were always free to enter into Partnership Agreements which would deal with how they internally operated the partnership. However, the liability of the partners could not be limited, until recently.
It was not until 1998 that amendments to the Partnerships Act allowed professions to form limited liability partnerships. Unlike a general partnership, where the partners are liable for debts and liabilities arising from the negligent acts of all partners, the partners in a limited liability partnership are not personally liable for the negligent acts of another partner or an employee who is directly supervised by another partner.
In order to protect the public, The Law Society of Upper Canada requires that each lawyer in a limited liability partnership must carry a minimum of $1,000,000.00 liability insurance.
The Law Society also requires that the partnership firm name clearly show its designation as a limited liability partnership by including the letters "LLP" in the firm name.
The Law Society also requires that there be disclosure to clients of the formation of a limited liability partnership by either notifying the clients directly by letter or by publishing in local newspapers. The purpose of this notice is to make sure that the clients of the law firm are aware that although the partners are no longer personally liable for the negligent acts of another partner, the partnership itself continues to be liable for the negligence of its partners, associates and employees and that there is no reduction or limitation on the liability of the whole partnership.
Clients will not notice any difference in their relationship with the firm or the protection which they enjoy. All that has been changed is the internal liability within the partnership and the relation between partners to each other.
Keith Jones is a partner at the law firm of Cobb & Jones. Should you have any questions for Ask A Lawyer, please direct them to the Simcoe Reformer or ask a lawyer of your choice.