LLP risk warning

UK limited liability partnerships (LLPs) impose an 'onerous burden on consumers and creditors who would otherwise be able to seek redress from other partners in the firm', according to a report by a Cambridge University think tank.

The paper, written by academic Kern Alexander for the university's government-funded economic and social research council, examined the experience of US LLPs and found they provide a disincentive for firms to adopt effective risk management systems to control negligence.

Controversially, it added: 'If professional firms of any size find it too costly, or are simply unable, to monitor effectively the activity of their attorneys/auditors to a necessary extent that the partners feel comfortable with the notion of unlimited personal liability, then perhaps the existence of these firms contravenes public policy.'

The report said the UK LLP model 'ensures a lower level of risk exposure for customers, creditors and the investing public', and 'is more appropriate for other jurisdictions considering whether to adopt LLP statutes'.

But even in the UK, the report concludes that 'a strong corporate veil' will protect LLP members from vicarious liability deriving from the negligence or misconduct of other LLP members.

Law Society policy executive Steven Durno said: 'The number of LLPs in the UK has been fewer than anticipated and it will take some time for substantive proof to emerge of greater risks for clients.

'Professional ethos requires partnerships and their partners to be responsible for their acts.

But if it means that firms will no longer be willing to offer professional services, where is the public interest in that?'

Jeremy Fleming