New draft legislation on limiting liability could actually improve the image of the legal profession by ending the secrecy on partners' profits, according to partnership expert Ronnie Fox.
Fox predicts that even small firms outside the top 100 would be likely to adopt limited liability partnership (LLP) status when the Department for Trade and Industry's (DTI) draft bill is passed into law.
Fox said that greater financial openness may give the public image of the legal profession a lift.
“There will be some real surprises – clients have the wrong idea about the money solicitors are making,” he said.
“A lot of people assume all lawyers make the same money as the big firms.”
The draft bill on LLPs will restrict liability for negligence to the firm and the individual partner who had been responsible, but protect the personal assets of other partners.
But to benefit from this limited liability, firms will be forced to file audited accounts, allowing public scrutiny of the partners' earnings.
After intense lobbying by accountancy firms and some law firms, the draft DTI bill has been made substantially more palatable than the original proposals in the consultation paper published this February.
Fox said small firms will particularly welcome the scrapping of the DTI's original proposal to require partner guarantees of the debts of an insolvent limited liability partnership.
The draft bill also contained improved “clawback” provisions – the circumstances under which a liquidator can recover money from partners of an insolvent firm.
Fox, senior partner at Fox Williams and chairman of the Association of Partnership Practitioners, said: “Small firms will now find limited liability status more attractive.”
Describing the introduction of audited and published accounts as “inevitable”, Rowe & Maw partner Richard Linsell said: “Given the balance of interests the Government has had to accommodate, the proposed legislation is as favourable as can be expected.”
But Linsell warned that law firm partnership agreements “will need a substantial review”.
“Because the LLP is a separate entity from the existing partnership it will be necessary to reorganise many aspects of the existing business if the partners are to get the full benefit of LLP status.”
Asked whether Fox Williams would convert into an LLP, Fox said: “We will certainly be considering it.”
See column on page 19.