Update on LLPs

UPDATE

After months of ongoing efforts on the part of the ICABC executive, CA firms, and a dedicated group of individual CAs, it appears the provincial government is finally showing signs of moving on the crucial issue of Limited Liability Partnerships (LLPs) in British Columbia.

We now get word that legislative officials from the Ministry of Finance are examining the legislation recommended by the Uniform Law Commission of Canada and the individual acts that have been implemented in other jurisdictions. BC policy-makers want to explore the pros and cons of each solution to ensure that BC adopts the best model for this province.

Full shield protection

The current debate is whether to follow the recent trend in North America that has seen 30 US states adopt the National Conference of Commissioners on Uniform State Laws (NCCUSL)'s new Uniform Partnership Act, which provides for full shield protection.

A bit of history: As the need for LLP legislation became more widely recognized in the early 1990s, legislators, particularly in the US, initiated what is now referred to as "partial shield" protection. Later reformers, including the NCCUSL in the US and the Uniform Law Conference of Canada, identified an important omission in these early legislative responses and are now encouraging extending coverage to include contractual as well as negligence claims.

Partial vs. full shield

The distinction between partial and full shield protection is subtle but critical to the profession. Both types of LLPs offer protection for the personal assets of uninvolved partners in cases of negligence, but only full shield offers protection in cases where negligence is not an issue. In other words, in both partial and full shield LLPs, partners who are not personally negligent are not personally liable for the negligent acts of others. However, only in a full shield LLP regime are the partners' personal assets protected from the partnership's non-negligence liabilities, such as contractual claims.

In effect, the full shield LLP treats modern business partnerships in the same manner as corporations, and equates the liability of partners to that of shareholders of a corporation. This is based on the realization that within such partnerships with a centralized management, the role of most partners (who are usually spread across the country) is more like that of shareholders of a corporation. Like these shareholders, partners remain personally liable for any personally negligent acts. As with corporations, all of the assets of an LLP remain available to satisfy claims against the partnership.

The influential NCCUSL has recommended full shield LLP protection as the appropriate course of action in reforming US partnership legislation, and Canadas Uniform Law Conference has facilitated similar reforms here by developing a Model LLP Act. Saskatchewan, as well as a growing number of US states, has acted to implement these reforms. Alberta and Ontario adopted their legislation earlier and implemented only partial shield.

Although it has lagged behind other provinces in implementing LLPs, BC now has the opportunity to reflect the more current legislative trend and to implement benchmark partnership legislation by adopting full shield LLP protection.

If this process plays out as we expect, LLP legislation will be drafted and presented to the BC legislature for approval in the spring 2003 legislative session, which gets underway next February. GR Update will continue to provide progress reports.

Public policy-making takes an iron stomach The reality is that moving a new policy through the public policy decision-making process can be both long and messy. There's actually an old political adage that says: "Those who like either public policy or sausages shouldn't watch either being made."

Initial efforts to move BC to a Limited Liability jurisdiction got underway several years ago under the former NDP administration when Joy MacPhail was Finance Minister. The New Democrats were going through a "business-friendly" period, and it was felt that the competitive advantages offered by implementing LLP legislation would be a compelling argument for the administration of the day. However, needless to say, the idea fell on deaf ears. Efforts continued when Paul Ramsey became Minister, but it soon became clear that the issue of LLP protection wouldn't fly with the NDP.

All through this period, the same case was built with key Opposition MLAs, including Rick Thorpe, Gary Collins, and to a lesser degree with Gordon Campbell, the then-- Opposition leader. Following the Liberal electoral sweep in May 2001, expectations were high that the new administration would quickly endorse LLP legislation as a positive business initiative. However, as the new government focused on its "New Era" commitments, the LLP measure continued to be put on hold. Further, finance ministry bureaucrats were hesitant to recommend LLPs despite the actions taken by other jurisdictions.

BC's CAs continued to work with ministry officials to address their concerns while continuing to remind politicians at every opportunity of both the merits of and the need to adopt LLPs. Several meetings were held with policy and legislation officials in the Ministry, and a number of initiatives were undertaken at the political level:

* In October 2001, the ICABC Council approved, in principle, an increase in the minimum levels of professional liability insurance required for members practising as LLPs-if and when such legislation were to pass in BC. Council instructed the Bylaws Committee to draft a bylaw regulation to provide for the following professional liability insurance: LLPs with fewer than five members-$1,000,000 minimum coverage; LLPs with five or more members$2,000,000 minimum coverage.

* In the fall of 2001, a briefing paper on LLPs was sent to Minister Rick Thorpe's office.

* In November 2001, the ICABC met with Minister of State for Deregulation Kevin Falcon, discussing outdated partnership law as legislation that diminishes the province's ability to compete.

* In December 2001, the ICABC met with Attorney General Geoff Plant. The Attorney General was already very familiar with the LLP and proportionate liability issues, but said the current legislative session was overloaded.

Early in 2002, the ICABC contacted the associations representing Architects and Engineers about LLPs and gained their support on liability issues.

* In early May, the ICABC met with newly appointed Deputy Finance Minister Paul Taylor, and later the same day, met with Finance Minister Gary Collins to yet again press the case.

* The following week, a presentation clearly outlining the business case for LLPs was made to the Government Caucus

Committee on the Economy, chaired by MLA Ralph Sultan.

On May 27, MLA Brian Kerr, FCA, made a private member's statement on Limited Liability Partnerships, encouraging his government to introduce legislation as soon as possible. Kerr made the case that BC's professionals are at a competitive disadvantage to the rest of North America and blamed 10 years of "anti-business government" under the NDP for the lack of action on LLPs. GCC Chair Sultan responded to Kerr's speech and supported his contention that LLPs were necessary for the province.

* All through this period, individual CAs met with key MLAs to discuss the LLP issue. Meetings took place with Stan Hagen, Minister of Sustainable Resource Management; Graham Bruce, Minister of Skills, Development and Labour; Richard Neufeld, Minister of Energy and Mines; Blair Lekstrom, Chair of the Finance and Government Services Committee; Shirley Bond, Minister of Advanced Education; and many others.

All this combined effort has finally started to pay off, as the government has at least taken the first step towards implementing LLP legislation in BC.

Copyright Institute of Chartered Accountants of British Columbia Oct 2002
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