Halliwell Landau announced last week that it is converting to limited-liability partnership (LLP) status on 1 July while also rebranding as Halliwells.
The firm is linking its conversion with a major restructuring – the divestment of its financial institutions department, which will become HL Interactive LLP.
Managing partner Ian Austin said: “In terms of the long term, in an ever-changing legal climate, a corporate structure makes sense. We’ve looked at the financial institution’s work… over the past 18 months, and it’s ideal to separate it out from the main core business areas.”
Halliwells joins an increasing number of partnerships ditching traditional structures for the corporate LLP model. Niche City firm Kemp Little was the first to go in July 2001, while the latest conversions include magic circle giant Allen & Overy (A&O). Those firms that have made the leap speak enthusiastically of its advantages; many of those that have not are intending to.
The principal driver is, of course, limiting a firm’s liability. But speaking to LLPs, it quickly becomes clear that these firms see many other advantages to the model.
“We’re seeing in many places that it’s going to be increasingly important for recruitment and retention,” says Rodger Murray, a corporate partner at Edinburgh firm Brodies, which converted on 1 May this year.
His words are echoed by many. Austin believes recruitment would be hampered by not being an LLP. Younger partners are seen as being more aware of risk and less set in their ways than more senior colleagues, and thus more inclined to embrace the modernity of an LLP.
Modernity is another oft-repeated theme. Firms such as Halliwells use conversion as an opportunity to rebrand and improve, sometimes streamlining their management structures or merging with another firm at the same time.
Withers, for example, converted to UK LLP status simultaneously with its 2002 merger with Bergman Horowitz & Reynolds. Later that year, when US firm Mayer Brown & Platt and UK firm Rowe & Maw merged (now Mayer Brown Rowe & Maw), the London office became a UK LLP, which is a partner in the US LLP.
Other firms have found it convenient to time their conversion with a change of location. Watson Burton, for example, is moving into new offices in Newcastle-upon-Tyne only a few weeks after it became an LLP.
LLPs offer huge advantages over traditional partnerships when it comes to property, because the lease can be held in the name of the LLP rather than the maximum of four partners. Gone are the days of having to transfer the lease every time new management is elected.
“It’s definitely easier to run an LLP than a partnership,” says Bruce Gripton, who guided Eversheds through its conversion last year. But Eversheds has not made any significant changes to its structure.
Indeed, the majority of the firms The Lawyer spoke to have retained a two-tier partnership and merely tweaked their partnership agreements.
Gripton says that the LLP is easier to operate because it is subject to Companies Act rules. A UK LLP is much more like a limited company than US LLPs. The US model differs slightly from state to state – Clifford Chance, for example, is a New York LLP – but is generally seen as giving less protection to both the firm and individuals within the firm than in the UK. It is for this reason that several major US firms are rumoured to be in the process of converting their London offices into UK LLPs.
However, the solidity of the LLP model is still untested. No LLP has faced a major claim, and until this happens, some firms, particularly the smaller ones, are reluctant to invest time and money into the conversion.
Tim Aspinall, managing partner at South Coast firm DMH, says: “Converting to an LLP is quite time-consuming and distracting, and we don’t want to focus on that defensive move.”
There are untested areas for the bigger firms, too. A&O has forged the way for the internationals by testing the tax regulations in many overseas jurisdictions, but some – notably Italy and Spain – have yet to make a decision on the status of UK LLPs.
This is delaying the conversion of other firms with international offices. Hammonds, which has branches in several European countries, including Italy, was planning to become an LLP at the beginning of this financial year, but has postponed the move.
“There were a number of issues relating to the eurozone practices,” says managing partner Chris Jones when asked about the firm’s plans. But he adds: “We’re determined, if at all possible, to make the conversion in this financial year.”
The Law Society, which regulates LLPs as it regulates every other solicitor’s firm in the country, supports the vehicle – but with a note of caution.
“We’re happy to see firms take advantage of the freedom to become LLPs, but it’s a big decision for any practice and the pros and cons have to be carefully weighed up. The step requires a lot of planning and may not be appropriate in all instances,” commented a Law Society spokesman.
Nevertheless, as time goes by, and if existing LLPs prosper, it seems clear that more and more firms will choose to convert. It is expected that another magic circle firm will follow A&O’s lead – indeed, just last week The Lawyer reported that Slaughter and May is planning to discuss the issue later this year.
On that note, perhaps the final word should go to Mayer Brown’s Richard Linsell, who has advised increasing numbers of professional partnerships on converting. “By the end of 2006, you’ll need an explanation if you’re not an LLP,” he insists.
So if that applies to your firm, you have 18 months to convert – or prepare that excuse.
|LLPs in The Lawyer 100|
|Firm||Converted||Auditors||External legal adviser|
|Allen & Overy||1 May 2004||Deloitte||None|
|Brodies||1 May 2004||Deloitte||None|
|Browne Jacobson||1 May 2004||Tenon||None|
|Burges Salmon||1 May 2004||PwC||In-house plus John Machell, Serle Court|
|DLA||1 May 2004||PwC||None|
|Eversheds||1 May 2003||Grant Thornton||None|
|Freethcartwright||1 July 2003||Blueprint Audit||None|
|Halliwells||1 July 2004||Deloitte||Yes|
|Harbottle & Lewis||1 August 2003||Chantrey Vellacott||Mayer Brown Rowe & Maw|
|Manches||1 March 2004||Lewis Golden||None|
|Mayer Brown Rowe & Maw||November 2002||Baker Tilly||None|
|Tods Murray||1 May 2004||Skene & Co||None|
|Watson Burton||1 May 2004||Ernst & Young||None|
|Withers||1 January 2002||Deloitte||None in the UK; Fried Frank in USW|
|Wragges||1 May 2003||Baker Tilly||None|
|Source: The Lawyer|
|Law Society LLP statistics|
|31 May 2004||153|
|31 May 2003||49|
|31 May 2002||30|