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Draft Limited Liability Partnership Bill

The Limited Liabi[ity Partnership Bill was

introduced into the House of Commons in

July this year in response to the growing

concerns surrounding large accountancy

firms moving their business operations

offshore. Large accountancy practices had

expressed their unhappiness about

organising their affairs by way of

partnership, especially since a partner is

liable under the Partnership Act 1890 for

his own acts as well as for those of his

colleagues. It is unrealistic to assume that

each partner can stay informed about his

fellow partners' actions, let alone control


2 Thus, the Bi[1sets out to create a new

institution, the limited liability partnership

(LLP), in which obligations accrue to the

name of the partnership rather than the

joint names of its individual members. The

only personal liability that an individual

partner has will be in respect of his predetermined

contributions to partnership

funds. This is somewhat similar to a

shareholder in a limited liability company.

However, unlike a company, the LLP will

be more flexible in terms of decisionmaking,

and board meetings, minutes

books, and annual or extraordinary general

meetings are not required. In addition, the

LLP wi[1 enjoy the tax status of a

partnership and limited liability of its


3 The Bill is not without its weaknesses,

however. One weakness which has been

observed is the fact that the accounting

requirements contained in Part VII of the

Companies Act 1985 are proposed to

apply to the LLP. Not only are these rules

some of the most demanding in Europe,

will also prove expensive to comply

LLPs. For

submit an annual

House and maintain


Act formulae. Annual accounts must be

prepared, and if the turnover of the LLP

exceeds £350,000 annually, the accounts

must be professionally audited.

4 These additional requirements have made

a further restriction on the management

freedom of LLPs.necessary. EachUP will

have to appoint a 'designated member'

who will be responsible for administrative

obligations and may incur criminal liability

in certain circumstances. On the subject of

liability, it is worth noting that an LLP

member will enjoy less limited liability

than a company director. In the ordinary

course of events, a company director is

not liable to a third party for his negligent

acts or omissions in the course of his

duties. His liability is to the company of

which he is a director. The position is

reversed in relation to an LLP member.

The claw-back provisions of the Insolvency

Act 1986 will also apply to LLPs. Thus, a

liquidator will be able to set aside any

transactions (drawings of salary or

repayment of money owed) within two

years prior to insolvency where the

member knew, or had reasonable grounds

for believing, that the LLP was or would

thereby become insolvent.

5 Indeed, limited liabi[ity is often highly

i[lusory or perhaps even over-rated,

especially when one considers that banks

often require personal investment

guarantees from directors in order to lift

the corporate veil which protects company

officers. The same wi[1undoubtedly apply

to LLPs.

6 In conclusion, the value of this new

institution has been weakened by the

proposed incorporation of the accounting

requirements. That is its single most

noticeable weakness; otherwise, it could

be said that the Bill is long overdue and

wi[1 hopefully have the effect of appeasing

those businesses which are considering

moving their operations overseas.

Unit 2 Companylaw:companyformationandmanagement


17Decide whether these statements are true or false.

1 The writer maintains that it is unrealistic to expect a partner to be fully

informed at all times about the activities of the other partners in the company.

2 The writer states that in an LLP,a company director is not liable for breaches

of duty or mistakes made when carrying out his responsibilities.

3 The writer implies that large LLPs will be exempt from the more complicated

accounting requirements set forth in the Companies Act of 1985.

4 The writer claims that it is likely that the limited liability provided by an LLP

will be restricted.

18Do you agree that the LLP is long overdue? In your view, is there also a need

for such an institution in your jurisdiction?

ng .

@ 9

Lawyersoften assisttheir clients in handling legal disputesinvolvingcorporate

governance.Thefollowing letter of adviceaddressesonesuchdispute.

19Readthe first three paragraphs. What does the dispute specifically involve?

Re: Specialshareholders' meeting of LongtelloWlnc.

I have now had an opportunity to research the law on this pOint and I can provide you

with the following advice.

Firstly, to summarise the facts of the case, a group of shareholders of tong fellow Inc.

has filed an action in the district court seeking to set aside the election of the board of

5 directors on the groundsthat the shareholders'meeting at whichthey were elected was

held less than a year after the last such meeting.

The bylaws of the company state that the annual shareholders' meeting fOr the election

of directors be held at such time each year as the board of directors determines, but

not later than the fourth Wednesday July. In 2001, the meeting was held on July

10 18th. At the discretionoUhe board/in 2002 the meetingwas held on March 20th..

The issue in this case is whether the bylaws provide that no election of dir~ctors for the

ensuing year can be held unless a full year has passed since the previOLis annUal

election meeting.

The law in this jurisdiction requires an 'annual' election oUhe dirEictorsforthe ensuing

15 'year'. However,we havenotfoLJndanycases or interpretationofthTslaw which.

determine the issue of whether the law precludes the holding of an election Llnti.l.a full

year has passed. The statutes give wide leeway to the board of directors in conducting

the affairs of the company. I beHevethatTtis unlikely that a couft will create such a

restriction where the legislature .has not specifically done so.

20 However,this matter is complicated somewhat by thefactthattherejs currently a proxy

fight underway in the company. The sharehOlders who filed suit are also alleging that

the early meeting was part of a strategy on the part of the directors to obstruct the

anticipated proxy contest and to keep these shareholders from gaining representation

on the board of directors, It is possible that the court will take this i.nto consideration

25 and hold that the purposefn calTingan early meeting was to improperly keep

themselves in office...The court might then hold that, despite the fact that no statute or

bylaw was violated, the election is .invalid on a general legal theory that the directors

have an obligation to actin good faith, Nevertheless, courts are usually JeIlJctant to

second-guess the actions of boards of directors or to play the role of an appellate body

30 for shareholders unhappy with the business decisions of the board. Only Where there is

a clear and serious breach ofthe directors' duty to actin good faith will a court step in

and overturn the decision. The facts in this case simply do not justify such court action

and I therefore conclude that it is unlikely that the shareholders Will prevail.


20Read the whole letter and choose the best answer to each of these questions.

1 On which grounds did the shareholders file the action?

a on the grounds of their rights as shareholders

b on the grounds of a violation of the bylaws

c on the grounds of an ongoing proxyfight

d on the grounds of their lack of faith in the board of directors

2 What does the writer identify as the issue in the case?

a whether the annual shareholders' meeting determines the term of the

board of directors

b whether the election of the board of directors requires a quorum

c whether the annual shareholders' meeting must be held a full year after

the last one

d whether the bylaws define the term 'full year'

3 What does the writer say regarding earlier cases related to this one?

a They provide for an analysis in favour of the shareholders.

b Theygive the board of directors the freedom to run the company as they

see fit.

c They have merely provided an interpretation of the legislative intent.

d Theydo not address the issue involved.

4 What reason does the writer give for his conclusion?

a It is dubious that the shareholders will prevail.

b The facts of th~ case do not support judicial intervention.

c A court of appeal will only look at the facts of the case.

d The board of directors has a duty to act in good faith.

21Choose the best explanation for each of these words or phrases from the letter.

1 on the grounds that (line 5)

a in the area of

b on the basis of the fact that

c despite the fact that

2 at the discretion of (line 10)

a according to the decision of

b through the tact of

c due to the secrecy of

4 statutes give wide leeway (line 17)

a statutes can easily be avoided

b statutes allow considerable freedom

c statutes restrict extensively

3 the ensuing year (lines 11-12)

a the next year

b the present year

c the past year

22Answer these questions.

5 alleging (line 21)

a stating without proof

b making reference to

c proposing

6 to act in good faith (line 28)

a to act from a religious belief

b to do something with honest intention

c to plan for the future carefully

1 What do the bylaws of the company stipulate concerning the date of the

election of company directors?

2 What do the shareholders claim was the reason why the annual

shareholders' meeting was held early?

3 What role might the concept of 'good faith' play in the court's decision?

23What is your opinion of the case? Do you think the shareholders' claim is


Unit 2 CompanyLaw: companyformation and management


24In the letter, different verbs are used to refer to what the company bylaws and

the relevant legislation say. Complete these phrases using the appropriate

verbs from the letter.

1 the bylaws of the company...

2 the law in this jurisdiction ...

3 the law...


25Look at Reading 4 again and discuss these questions.

1 What is the purpose of the letter?

2 Who do you think might have requested it?

3 Looking at the letter carefully, what would you say is the function of each


The text in Reading 4 represents a letter of advice,a type of text written by a

lawyer for a client.

The function of a letter of advice is to provide an analysis a legal

so that the client can make an informed decision concerning a course of


Another type of text whiQh should be merrtJonedhere because of its

similarity to a letter of advice is a legal opi...iol1.WHiJ.ethe langUage of this

type of text is similar, a legal opiniblJ is generally much longe.r,as it ef)tEJlls

thorougH research and covers the issues in greater detail. A legal opiniQn

also carries much more weight and greater potential liabIlity for the lawyer or

firm issuing it.

Regarding the contents, we can say that,in general, a Jetter of advice:

identifies the legal issue at sta~e in a given sitUation and explains how

the IEJWapplies to the facts presented by the client;

indicates the rights, obligations and liabilities of the client;

outlines the options the client has, pointing oUtadvahtages and

disadvantages of each option;

considers factors such as risk, delay, eXpense, etc., as well as case,specifib


makes use of facts, relevantlaw and xeasoning to sUpport tHe advice;

The structure of the letter can be made clear by using standard signalling

phrases. The table on page 31 provides examples of phrases Used to structure

the information .in a text. These phrases serve as signals, pointing to

information before it is presented, thus ir1creasipg the clarity of a text.


26Read through the letter once again and look for 11 phrases with a signalling

function. Add them where appropriate to this table.

I ~r.I l"Ta11i .

mmIm mu:;l1J.LL.~~;1~1



I~r.Ir:rn 11~1Qt:l'j;II\~



~'jI[I]II-"I1- I

'tJt;1','j 1,~,j:O] II>! !mIl] 11-"1







27A client who is the managing partner at a small European accountancy firm has

SAMPANS~WEER asked you for information concerning LLPs. He would also like your advice

p.z8S regarding the founding of such an LLP.

Write a letter of advice in which you should:

0 say what an LLPis;

0 list advantages and disadvantages connected with it;

0 recommend the best course of action for his firm.

Before you write, consider the function, the expected contents and the

standard structure of a letter of advice. Refer back to Reading 3 for information

about LLPs and make use of signalling phrases from the table above to help

structure the information in your text.


To improve your web-based research skills, visit www.cambridge.orgjeltjlegalenglish.click on

Research Tasks and choose Task 2.

Unit 2 Companylaw:companyformationandmanagement


Vocabulary: distinguishing meaningWhich word in

You may need to consult a dictionary to distinguish the

1 stipulate

2 succeeding

3 responsibility duty

4 prior previous prerequisite

5 margin leeway latitude

6 preclude permit forestall

Vocabulary: word choice

management. In each case,


1 The constitution of a company comprises I( consisYi>/ contains of two documents.

2 The memorandum of association states lPiOVides for / sets up the objects

of the company and details its

3 The articles of

the internal management of a

4 The company

management is

5 In some companies, the

for rotation of directors,

retire and

6 Many small

and will often

vote on the basis of /

Word formation

the correct noun or verb form.

stressed syllable

one syllable.

Date: 2015-12-11; view: 2266

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