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Hong Kong law firms could be allowed to set up LLPs from next year


Law firms operating in Hong Kong could be allowed to establish limited liability partnerships (LLPs) from next year after long awaited legal changes take effect.

Legal Week has reported that Hong Kong's Legislative Council (Legco) is expected to approve the additional legislation necessary for firms to set up LLPs within the next 12 months. The Legal Practitioners Amendment Ordinance (15-page / 66KB PDF), which set a legal framework for LLPs in Hong Kong, was passed last year but is yet to come into force.

"In terms of making Hong Kong law for businesses consistent with other jurisdictions where they have a modern approach to this sort of structuring, then it makes sense and makes Hong Kong law more fit for purpose," said Vincent Connor, head of the Hong Kong office of Pinsent Masons, the law firm behind Out-Law.com.

"It's not going to remove the need for care and caution, but it will provide consistency of structure. For that reason, it is attractive," he told Legal Week.

Currently, lawyers in Hong Kong can only operate as sole practitioners or as part of a general partnership, meaning that each member of the practice can be individually liable for all the debts and obligations of the partnership. In an LLP, the partnership takes on some of the characteristics of a company and so is a separate legal entity from the individuals or companies making up the partnership. Significantly, each partner's individual liability for the debts of the partnership is limited.

Once the changes are in force, firms that choose to convert to LLP status will be required to top up their professional indemnity insurance from HK$10 million (£805,000) to HK$20m (£1.6m), regardless of size, according to Legal Week. Firms will also be required to name at least one supervising partner responsible for each matter.

'Clawback' provisions set by the new rules will require partners to pay back their profit share as compensation in the event of firm dissolution or bankruptcy within two years of their exiting the LLP, according to Legal Week. This has been considerably limited from an original proposal which would have set the clawback period at six years.

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