The Governance Scheme
The Partnerships Act permits certain professionals to practice in limited liability partnerships, provided that the following conditions are satisfied:
- the Act governing the profession expressly permits a limited liability partnership to practise the profession;
- the governing body of the profession requires the partnership to maintain a minimum amount of liability insurance; and
- the partnership registers its name under the Business Names Act.
For lawyers and paralegal licensees, these conditions are satisfied as follows:
- Section 61.1 of the Law Society Act permits lawyers and paralegal licensees to form limited liability partnerships for the purpose of practising law or providing legal services;
- Part I of By-law 7 requires that a limited liability partnership maintain professional liability insurance coverage for each partner in accordance with By-law 6. By-law 6 details individual insurance requirements for lawyers and paralegal licensees. Therefore, a limited liability partnership is required to ensure maintenance of individual insurance coverage for each of its partners in the amount required for individual licensees as prescribed under By-law 6; and
- The Partnerships Act requires that a limited liability partnership register its name under the Business Names Act and that the name include the words "limited liability partnership" or "société à responsabilité limitée" or the abbreviations "LLP", "L.L.P." or "s.r.l." as the last words or letters of the firm name.
Although By-law 7 provides that the limited liability partnership must maintain insurance coverage for each partner, lawyers and paralegal licensees remain individually obligated to ensure compliance with the requirements of By-Law 6.
Lawyers and paralegal licensees are strongly encouraged to seek appropriate professional advice with respect to establishing a business structure suited to their particular circumstances.
By-law 7 contemplates that an existing general partnership may wish to continue as a limited liability partnership. In such case, section 2(1) of By-law 7 requires that the partnership disclose to each person who was a client immediately before the continuance and who remains a client after the continuance the liability of the partners of the limited liability partnership under the Partnerships Act.
Firms may choose to publish a notice in a local newspaper as provided in subsection 2(2) of By-law 7. Such notices should be complete and clear enough for clients to understand the nature of the limitation on the liability of the firm. If the partnership chooses to send a written notice to clients, they are encouraged to design their own communications respecting the disclosure requirement and customize them as they see fit for their particular clients. To the extent that lawyers may find it useful, a sample letter, appearing below, may be considered an example of a communication on disclosure.
Sample Disclosure Letter for LLPs
Effective (date), the firm of ---- has become a limited liability partnership, as permitted by the Partnerships Act and the Law Society Act. The firm is now known as ----- LLP.
As the name suggests, the partnership carries on the practice of law with a degree of limited liability. 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. Each partner is personally liable for his or her own actions and for the actions of those he or she directly supervises and controls. The partnership continues to be liable for the negligence of its partners, associates and employees, and accordingly there is no reduction or limitation on the liability of the partnership. All of the firm's assets remain at risk.
Liability insurance protection for the lawyers of the partnership continues, and minimum insurance requirements, as required by the Partnerships Act, have been established for LLPs by the Law Society. The Law Society has determined that the liability insurance coverage for an LLP is that maintained individually by the partners.
The limitation on liability is the only change to the partnership resulting from the legislative amendments and this change will not affect our firm's relationship with you as a client. We would be happy to answer any questions you have about our limited liability partnership.