The Government's proposed legislation for limited liability partnerships (LLPs) will put City law firms at a disadvantage overseas firms with offices in the UK, say critics of the bill.
The draft Limited Liability Partnership Bill requires UK LLPs to disclose accounts, but does not require overseas LLPs to do so. This would mean US partnerships competing with UK firms would have access to information about their rivals' finances.
Most US firms operating in the UK are registered as LLPs in the US. The partnerships protect individual partners' assets from negligence claims made against the firm.
Richard Linsell, head of Rowe & Maw's professions group, says: “If the 60-odd US LLPs in London are not subjected to the new law, then they will avoid the rigorous financial disclosure required under audited accounts.
“The City firms that compete with them for mandates and staff will, when becoming UK LLPs, be disclosing not only partner earnings but also the capital and borrowings of the firm and much other now secret information. The US competitors will be the first to want to read all about it.”
The bill allows the trade and industry secretary to impose regulations on overseas firms. But the Government's consultation document says: “There is at this stage no intention to implement regulations for overseas LLPs.”
A DTI spokeswoman says: “Overseas LLPs are treated as companies for tax purposes. A UK LLP will be treated as a partnership for tax purposes. It will be up to them [overseas LLPs] whether they want to take advantage of the tax benefits of becoming a UK LLP.”
Richard Thomas, director of public policy at Clifford Chance, says he understands the Government will apply the same standards to overseas LLPs in due course. “It is a question of timing,” he says. “[The Government] have got a lot on their plate.”