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Draft Limited Liability Partnership BillThe 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 them. 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 members. 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 Companies 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 E 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 justified? Unit 2 CompanyLaw: companyformation and management E 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 paragraph? 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 action. 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 factors; 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 ~llllllllf:ljr=!ll~ Ir;r:mtl~~~ I~r.Ir:rn 11~1Qt:l'j;II\~ ~IDJII]I~'tiJI~jll]ll-"1 . ~'jI[I]II-"I1- I 'tJt;1','j 1,~,j:O] II>! !mIl] 11-"1 ~ ~ ing= II .. r 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. .t.ll'lil2 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, them. 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: 2661
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