In a year's time, partnership could look very different.

First, reform of the Partnership Act may be under way.

The legislation -- which has remained largely unchanged since it was created in 1890 -- is currently the subject of a report by the Law Commission (see [2000] Gazette, 14 September, 1).However, the Act is of greatest relevance to small partnerships which never constitute themselves formally by agreement, and therefore rely on its default provisions.At the other end of the scale, sophisticated firms juggling their partnerships to accommodate global corporate ambitions are also facing a revolution.

Limited liability is likely to become a reality next year when the Limited Liability Partnership Act 2000 comes into force, while the Law Society is making moves towards allowing forms of multi-disciplinary partnerships (see below).

It is making life for partnership law practitioners -- only recently recognised as a practice area -- extremely interesting.Richard Linsell, a partnership specialist at City law firm Rowe & Maw, says the new culture of more mobile executives is bringing other challenges.

In the law, it is reflected in the concern partnerships are increasingly showing to protect themselves from defections.The old tricks are becoming more sophisticated, so that straightforward restrictive covenants protecting goodwill have now developed in some cases into sophisticated 'good leaver/bad leaver provisions', he says.Broadly, these clauses enable firms to retain the outgoing partners' capital for a period.

If the partner goes into a different and non-threatening sphere of work, then the firm will release his capital quickly (good leaver), but if he moves to a competitor, the firm will retain the capital as a carrot to prevent the partner involved from pilfering clients (bad leaver).'There's nothing like hanging on to someone's money to stop them nicking clients,' says Mr Linsell.These techniques also apply to indemnity clauses for outgoing partners, which are increasingly used to limit damage that may be caused by partner defections.

By refusing to give a 'bad leaver' from the firm a full indemnity, he is still concerned that the firm's interests are protected.Richard Turnor, vice-chairman of the Association of Partnership Practitioners (APP) and head of the partnerships team at City firm Allen & Overy, says that, in the age of global branding and information technology, 'f irms are also ensuring that partners who leave do not take any of the electronic documentation that partnerships now see as vital to the service that attracts clients to them'.Renowned partnership specialist Ronnie Fox of City firm Fox Williams, founder and chairman of the APP, says: 'Firms realise that the current merger waves, with their accompanying losses of partners and sometimes teams, can be very damaging.

So longer notice periods, tighter restrictive covenants, and gardening leave clauses are de rigeur.'Mr Fox does not doubt the main factors encouraging law firms to make greater use of such clauses: 'The accountancy firms' legal arms (such as KPMG's Legal, Andersen Legal's Garretts and PricewaterhouseCoopers' Landwell) are expanding aggressively, and they have been very successful in other jurisdictions, so there is no reason why they shouldn't be here as well.

The 60 or so US firms in London are also now establishing themselves as significant service providing partnerships, and they too are expanding.'Gardening leave clauses mean that a partner who hands in his notice indicating that he intends to move to a competitor is compelled to take a certain amount of time out of the market, in order to enable the firm that has suffered the defection to consolidate its client base around a new adviser.Although there are rumblings that these clauses can be unfair on the partners involved -- leaving them to miss work for as long as a year, until the clause lapses -- Mr Linsell says that they also have their advantages.One of his friends in a City accountancy partnership was recently put out to garden for a year.

The partner was worried he would lose some his high-profile banking clients.Mr Linsell says: 'In the event his golf handicap went down, he had the opportunity to spend time with his wife and children, and it did not do him any harm.

If serious bankers find out that a professional is on gardening leave, his kudos goes up because they know that he must have been worth that clause.'In fact, the gardening clause can backfire on the firm that forces a partner to find other things to do through inactivity.

Mr Linsell adds that another partner on gardening leave went trekking in Bhutan, and sent postcards to his old colleagues, letting them know how much he was enjoying the freedom they were paying for.

He says: 'If I got a postcard from Bhutan, and I was a trekking enthusiast, I would be very pissed off.'Another, more complicated, problem thrown up by the current mood for mergers is the so-called 'waiting room' clause which states that only two to five partners can hand their notice in at the same time.

These clauses are also on the increase, with whole departments and smaller branch offices increasingly falling prey to global predators.Another area in which partnership specialists have found their advice in high demand is partnership de-merger.

This is especially prevalent as a result of recent rulings made by the US Securities and Exchange Commission (SEC).The SEC is unhappy about the combination of audit and other consultancy advice, especially legal, in one firm of professional advisers.

This is causing the bigger accountancy firms to break up their enormous practices.So far, Cap Gemini has bought Andersen Young, a consulting branch of big five accountants Arthur Andersen, and PricewaterhouseCoopers is rumoured to be in talks with Hewlett Packard for the sale of its consultancy arm.Transactions like these are keeping partnership lawyers busy.

There has been a domino effect, according to Mr Turnor, as other p artnerships get 'caught up in the pressure of a global trend'.However, Ronnie Fox thinks the SEC has a 'bee in their bonnet', and maintains that one of the accountancy firms may soon challenge the commission.Partnership lawyers are currently caught in the middle of the global upheavals affecting the companies they advise, but from next year, with the introduction of the LLPs Act, they will become advisers to a new business vehicle.

Mr Linsell thinks the LLP will be 'very popular within five years'.He explains: 'With its horizontal management structure, flexible management, lower national security contributions and easier compliance, it will become the business vehicle of choice for new media and technology companies.'He foresees that partnership lawyers might soon be colonising corporate ground from company lawyers, if the popularity of LLPs lives up to his expectations.

However, he does say that LLPs may struggle to attract employees who are looking for the stock options that only companies can provide.Mr Turnor is also confident that the start-up companies will use the new LLP structure, and he also predicts that partnership law will begin to impact on company department work as a result.Mr Fox is more sceptical.

He says that the onus on companies to disclose their accounts makes LLPs less attractive than US LLPs and therefore many companies may choose to become LLPs in the US -- as City giant Clifford Chance did at the start of this year.LIMITED LIABILITY PARTNERSHIPS -- DO THEY FIT THE BILLThe Limited LiabilitiesPartnerships (LLPs) Act will -- it is hoped -- come into effect in the first few months of next year.

The first time solicitors were offered the chance to limit their liability -- through incorporation -- few took up the option.

So should law firms consider an LLP? Here are some of the areas to bear in mind when deciding whether an LLP is the right business vehicle.DisclosureThe law will apply the same disclosure provisions relating to accounts to LLPs as it does to private companies.

This means that audited accounts must be filed at Companies House annually.

In addition, the income of the highest-paid partner in the LLP must be disclosed.Pros: Accounts for larger firms are increasingly transparent anyway with speculative league tables published annually by journalists.Cons: Fluctuations in the figure given for the highest-paid partner could vary considerably, leading to speculation that the LLP has not had a good year.

This may in fact be caused by a specific deal between the partnership and that partner.

However, such anomalies could be dealt with in an explanatory note to the accounts.Another problem with the accounts will be the obligation of the LLP to record contingent and future liabilities, including retired partners annuities and rent for unoccupied premises.Firms might want to consider whether disclosure of their accounts may damage them by releasing important information to competitors.Bank borrowingsBanks will treat LLPs like private companies.

Where they request loans, banks will look at the LLPs accounts; they may demand guarantees from individual partners in respect of borrowings.Legal identityThe LLP will have a clear legal identity.

This means that where partnerships currently enter leases and other service contracts through special purpose companies, the LLP will appear as the named party to, for example, the lease of the LLP's offices.Pros: Gives consistency to landlords.Cons: Again, landlords and others entering service agreements with the LLP may seek separate guarantees from some or all of the individual partners.International partnershipsThose international firms keen to convert into LLPs should be careful of the ramifications that being an LLP may have within overseas jurisdictions.

For example, firms in mainland Europe need to ensure that becoming and LLP will not have the effect of making partnership profits within that jurisdiction be treated as company dividends to the directors.

This may lead to significantly higher tax liabilities.International partnerships converting into LLPs might also have to clear regulatory hindrances within overseas jurisdictions to enable the LLP branch to practise law.Former partnersOne of the problems for LLPs will be posed by former partners whose annuities will appear on the disclosed accounts.

These partners will often also have to give their consent to the partnership becoming an LLP, because of the terms of the existing partnership agreement.

Many partnerships will be reliant on the consent of former partners if they wish to convert.Tax avoidanceA Parliamentary steering committee is currently examining measures aimed at preventing LLPs from being used as vehicles for tax avoidance.

The LLPs Act should come into force before the committee reports back, but firms contemplating using the LLPs for tax avoidance purposes do so at their own peril.MULTI-DISCIPLINARY PARTNERSHIPS -- THE DEBATE CONTINUES, BY NEIL ROSEThe debate over multi-disciplinary partnerships (MDPs) has been going on for years and is set to run for many more to come.But the arguments are well-worn now and developments in recent months have done little to clarify how things are shaping up.

In the US and Scotland, for example, lawyers have reaffirmed their opposition; but in England and Wales and Canada, the mood is far more pro-MDP.The Law Society's MDPs working party's long-term goal is that 'solicitors should be allowed to provide any legal service through any medium to anyone, while still providing the necessary safeguards to protect the public interest'.To bring about MDPs in the UK, primary legislation is needed.

However, the working party has identified two 'interim models' which can be done without this -- one allowing non-solicitors to become minority partners in a law firm and the other allowing linked partnerships, such as Garretts and Arthur Andersen, to share fees.The key issue is independence.

The Society is looking at whether this means the ability to give independent advice or has a broader meaning to include commercial agreements between law firms and other businesses.

Others have already decided that independence should be total.The International Bar Association (IBA) is always a good bell-wether of opinion, and at its biennial conference in Amsterdam last month, it once again pulled back from confrontation on this issue.

When setting its policy two years ago, an initially very hostile resolution was heavily amended and ended up taking no position either way on MDPs.

The IBA's policy is simply that in the event of a country allowing MDPs, it should regulate individual lawyers within them -- rather than the MDP itself, crucially -- to ensure that the core values of the legal profession are upheld.There were attempts in Amsterdam to harden this and cast MDPs as 'a material threat' to core values.

Once again, the IBA council rejected this.But the MDPs argument is moving out of the control of lawyers; it is outside authorities which matter -- they were introduced in New South Wales in Australia not on the lawyers' say-so, but on the state gover nment's.On the anti-MDP side, the single most important contribution to the US debate came in a letter from the Securities and Exchange Commission, which said its independence rules 'prohibit an auditor from certifying the financial statements of a client with which his firm also has an attorney-client relationship'.

This supports the view that the contrasting duties lawyers and accountants have -- one to their client, the other to the wider public -- make their combination in a single practice incompatible.However, in the UK the Office of Fair Trading, in its investigation of competition in the professions, is looking at MDPs from the standpoint of a long-time supporter.

Another factor is the World Trade Organisation (WTO), which will shortly begin its investigation of lawyers' cross-border practice rules.The WTO works on the basis that any MDP ban would have to be the minimum regulation required to meet justified policy objectives, such as avoiding conflicts and retaining confidentiality.

The indications are that a total ban is too much regulation.And then there is the European Court of Justice.

At some point in the next six months, it will consider an appeal against the Dutch Bar's ban on MDPs brought by Big Five accountants Arthur Andersen and PricewaterhouseCoopers.

At first instance, a Dutch court upheld the ban, saying that, even if it is a restriction on the free provision of services, it is justified in the public interest because the independence of lawyers is essential to the administration of justice.The court found the ban proportionate, pointing out that it does not prohibit co-operation between lawyers and accountants.But if the European court disagrees, then the MDP revolution will truly begin and no amount of wailing from either side of the Atlantic will stop it.