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1 ALTERNATIVE BUSNESS STRUCTURES – THE PARTNERSHIP ACTS

By Chantal Simpson With the introduction of the Partnership (General) Act and the Partnership (Limited) Act (together “the Partnership Acts”), one common question among attorneys is whether this new legislation creates additional avenues through which attorneys may carry on their practice.

While the Partnership Acts pave the way for such Alternative Business Structures, they by themselves have not effected a change in the manner in which Attorneys can do business in Jamaica.

WHAT IS THE EFFECT OF THE PARTNERSHIP ACTS? The Partnership (General) Act The Partnership (General) Act codifies the common law principles that apply to the operation of partnerships. It also introduces two new types of General Partnerships, the General Partnership with Separate Legal Personality and the Limited Liability Partnership.

Codification of the common law Part II of the Partnership (General) Act codifies the common law principles that currently govern general partnerships in Jamaica and when it comes into force, it will apply to all existing partnerships.

Introduction of General Partnership with separate legal personality and Limited Liability Partnerships Part III of the Partnership (General) Act, provides for the formation of partnerships with separate legal personality. These partnerships will have the right to sue and defend an action, own land and enter into contracts in their own name.

Part V of the Partnerships General Act allows for the formation of limited liability partnerships. These are general partnerships with separate legal personality and in which the liability of the partners is limited to the amount of their capital contribution to the partnership.

Partnership (Limited) Act The key difference between a general partnership and a limited partnership is the fact that a limited partnership has at least one limited partner and at least one general partner while a general partnership

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2 only has general partners.

A general partner is a partner who is involved in the management and the day-to-day operations of the partnership.

A limited partner is an investor in the partnership whose liability is limited to the amount of his capital contribution to the partnership. A limited partner is excluded from the management of the partnership and where he engages in such activities, he loses the limit on his liability.

When the Partnership (Limited) Act comes into force, it will repeal the current Partnerships (Limited) Act which facilitates the formation of a limited partnership for the purpose of carrying on mercantile, mechanical, agricultural, or manufactory business.

The Partnership (Limited) Act will allow limited partnerships to be set up for carrying on any type of business, provided that this is not prohibited by any other enactment that governs such business or trade.

There are three types of limited partnerships under the Partnership (Limited) Act, the limited partnership without separate legal personality, the limited partnership with separate legal personality and the limited liability limited partnership.

Will Attorneys be able to utilise these partnership structures?

Separate legal personality As the general partnership with separate legal personality, the limited liability partnership, the limited partnership with separate legal personality and the limited liability limited partnership are all bodies that are separate and distinct from their partners, the partnership itself must meet the criteria set out in the Legal Profession Act (“LPA�) for practising as a lawyer.

By virtue of section 8 of the LPA, if a person who is not enrolled practises as a lawyer, that person shall be liable to summary conviction before a Resident magistrate to a fine of five hundred thousand dollars in

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3 respect of first offence and a fine of one million dollars for every subsequent offence.

Section 6 of the LPA sets out the criteria for qualification for enrolment. It states“(1) A person shall be qualified for enrolment if he holds a qualifying certificate and satisfies the [General Legal] Council that he has attained the age of twenty-one years, is not an alien, and is of good character.

(2) A person may, at the discretion of the [General Legal] Council, and subject to such conditions as may be prescribed by regulations made under section 10,be enrolled if he satisfies the Council(a) that he has attained the age of twenty-one years, is not an alien, and is of good character; and (b) that he is qualified to practise law in any country having a sufficiently analogous system of law and that his qualifications are such as to render him suitable for enrolment.”

In order to obtain a qualifying certificate, a person must, among other things, possess a Bachelors Degree in Law from a recognised tertiary institution and a Legal Education Certificate from Council of Legal Education.

The use of the word “person” in section 6(1) as opposed to the word “individual” could be seen as an indication that a body corporate could also qualify to practise as a lawyer. However, the actual criteria for enrolment can only be met by an individual.

In jurisdictions that do allow attorneys to carry on the practice of law through bodies corporate, there are special provisions that govern such practice. For example, in the United Kingdom, in order to carry on the business of law through a body corporate, an application must be made to the Solicitors Regulatory Authority (SRA) requesting that such body be authorized as either a recognized body or a licensed body. Section 13.1 of the SRA Practice Framework Rules 2011 provides that“To be eligible to be a recognised body, a body must be a legal services body namely a partnership, company or LLP of which: (a) at least one manager is: (i) a solicitor with a current practising certificate, or (ii) a [registered European lawyer] (REL), or (iii) (in the case of a partnership or LLP) a body corporate which is a legally qualified body with at least one manager who is a solicitor with a current

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4 practising certificate or an REL; and (b) all of the managers and interest holders are lawyers and legally qualified bodies.�

In Canada, the Ontario Business Corporations Act and the Law Society Act permit lawyers and licensed paralegals to practice law or provide legal services through a Professional Corporation (PC) where such PC has obtained a Certificate of Authorisation from the Law Society.

In order to qualify for the Certificate of Authorisation, the Law Society must be satisfied that all shareholders and officers of the PC are lawyers or licensed paralegals. The Articles of Incorporation must contain a restriction on the transfer of shares to a person who is not a lawyer and should restrict the business of the PC to the practice of law and the provision of related or ancillary services.

These examples give an indication of the type of framework that would have to be introduced to facilitate the practice of law through an entity that has separate legal personality.

Limited liability The limited liability partnership (a general partnership) and all the limited partnerships allow some or all partners to limit their liability to the amount of their capital contribution.

Allowing partners to limit their liability raises the issue of whether members of the public would be adequately protected when dealing with these partnerships.

In the United Kingdom 1 and Canada 2, Limited Liability Partnerships are mandated to maintain professional indemnity insurance at the levels indicated by the SRA and the Law Society respectively.

Limited Liability Partnership in these jurisdictions are are allowed to limit their liability to the amount of their insurance coverage.

This approach should be considered when formulating rules to govern to partnerships under the Partnership Acts.

1 2

Solicitors Indemnity Insurance Rules Law Society By-Laws 7, Part II

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5

Limited Partners There are two aspects of this type of partnership that are worth considering as it relates to the practice of law. The first relates to the limitation on an Attorney’s liability (as discussed above) and the second relates to the issue of fee sharing, where it is that a person who is not an Attorney wishes to be become a limited partner in a law firm.

Fee Sharing Canon II (a) of the Legal Profession (Canons of Professional Ethics) Rules, prohibits an Attorney from holding out any person who is not qualified as a lawyer, as a partner. Canon IV(a) further prohibits an Attorney from entering into partnership or a fee sharing arrangement concerning the practise of law with non-qualified persons or bodies. These restrictions mean that only a qualified attorney can be a limited partner.

In the United Kingdom, extensive provisions are made under the Legal Services Act and the SRA Practice Framework Rules for the licensing of bodies that are not fully owned by lawyers. However, as pointed out by Steven Richman in his paper Changing Legal Terrain: Beyond The Traditional, Alternative Business Structures, at page 4, this type of structure remains controversial in other parts of the world.

Conclusion The Partnership Acts by themselves do not create Alternative Business Structures for Attorneys but pave the way by creating a framework for which rules need to be developed in order to ensure that the honour and dignity and the profession are maintained.

Chantal Simpson-ABS- Partnership Acts.doc