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
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
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?
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
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
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
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 .
'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
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
5 In some companies, the
for rotation of directors,
6 Many small
and will often
vote on the basis of /
the correct noun or verb form.
Date: 2015-12-11; view: 1282