Insights

Limited Liability Partnership – Burning bridge and game changer

  • Written By: Paul Wyse
  • Published: Mon, 02 Mar 2020 11:39 GMT

"If a window of opportunity appears, don't pull down the shade."  Tom Peters, American writer

Launch Of The 8Th Survey Of Irish Law Firms

Photo: Brian J Doherty, Paul Wyse and Giles Murphy at the launch of the 8th Survey of Irish Law Firms

For many years the legal profession has sought the introduction of Limited Liability Partnership (LLP), extensively lobbying successive Ministers for Justice and Equality. The Legal Services Regulation Act 2015 provided for the introduction of LLP however it took four years, including the establishment of the Legal Services Regulatory Authority (LSRA), to create the relevant regulations.

LLP, but not as we know it!

As of end of January, 70 firms have been authorised as LLPs by The Legal Services Regulatory Authority, with a further 109 applications in progress. Most law firms in our recent Smith & Williamson survey indicated they would adopt the LLP structure in the next three to five years (59% of all firms and 87% of top 20 firms). There is a marked contrast between Dublin firms and regional practices with two in three Dublin firms signalling their intention to become LLP’s, compared to only two in five regional firms. This may well be due to the relative number of sole practitioners operating outside Dublin.

 

Limited Liability Partnership applications to LSRA

Number of requests for application forms

199

Number of completed applications with fees received

109

Number of LLP authorisations issued

70

As of 29th Jan 2020 (Source; LSRA)

 

LLPs have been, for almost two decades, the standard operating structure for UK law firms. They operate as a partnership with a corporate “wrapper” and limited liability protection for the individual partners. Even with this limited liability, they do not require publication of accounts or returns to the Companies Registration Office (CRO). In all other respects an LLP law practice will remain a partnership subject to the Irish partnership legal framework, obligations and regulations. In other words, LLP partnerships in Ireland have the advantage of limiting liability without the disadvantages of public disclosure and scrutiny of their finances – a key reason for their popularity.

Is it a game changer?

In Ireland most practices are small, with 86% of practices having five solicitors or less. The introduction of LLP is, we believe, a pivotal moment for the legal profession. Over 1000 solicitors - 45% of Ireland’s law practices - are led by a single practitioner. Single solicitor practices cannot adopt Limited Liability status. These single member practices now have a meaningful incentive to combine with other complementary practices. In addition, with over three in ten practicing solicitors aged 50 years or older, many are turning their attention to retirement. LLPs offer partners in Irish law firms an opportunity to significantly reduce their personal exposure for debts, obligations, and liabilities incurred by the firm. With this in mind, a period of consolidation appears inevitable.

International firms

We have seen more UK and international firms entering the Irish market in recent years. They have taken several routes to market but have primarily favoured a greenfield set-up. The protections provided by the new LLP structure are likely to encourage merger and acquisition activity.

A bed of roses?

Mergers and acquisitions present risks, but can deliver economies of scale, broader practice and service lines and facilitate growth and management succession. To succeed, it needs to be properly planned, with robust due diligence. The objectives and direction of the merged firm must be clear and cultural alignment should be an important consideration. Key stakeholders, partners, staff and clients must be given enough time to ensure positive engagement and strategic alignment.
The Irish LLP structure has some limitations in terms of raising capital and retaining working capital. As such, the implementation of the new structure will require detailed planning by law firms and their management teams to maximise the opportunities from an ownership, succession and taxation point of view.

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