Question and Answer: Limited Liability Practice
By Melvin McCartney
Q: Why would a sole practitioner or small firm want to use a limited
liability organization?
A: Limited liability organizations are used primarily for business or
tax reasons, wholly apart from professional liability reasons. Some
lawyers will use the LLP, LLC or S.C. for pension, tax or health
insurance purposes.
The LLP, LLC or S.C. does insulate the law firm owner, even a sole
practitioner, from general creditors of the firm provided only that the
limited liability organization form is used in all contracting. A
creditor of the limited liability organization firm usually can attach
only the assets of the firm and not the personal assets of the firm
owner.
Limited Liability Partnership Teleseminar set for June 3
State Bar CLE Seminars will offer the Limited Liability Partnership
teleseminar on June 3 from noon to 1 p.m. Attorneys Joe Boucher and Len
Sosnowski will bring participants up-to-date on the new Wisconsin
Supreme Court rule allowing attorneys to practice in limited liability
entities. If you haven't received a brochure on this teleseminar and
want more information, or to register, please call the State Bar at
(800) 362-8096.
Wisconsin Limited Liability Company Handbook is your source of
complete information
This popular handbook, with forms on disk, will teach you what you
need to know to advise clients on when and how to use LLCs. The handbook
explains how you can take full advantage of the flexibility permitted
under the Wisconsin LLC statute - without losing the advantages of
pass-through tax treatment. The 1996 supplement adds a new chapter on
limited liability partnerships (LLPs). This 450-plus page book is $165.
For more information or to order, please call the State Bar.
Or Order Online Now!
Q: How does the LLP, LLC or S.C. limit the liability of the law firm
owner for acts, errors or omissions in providing professional legal
services?
A: The limited liability organization does not change the personal
liability of an attorney from the attorney's professional legal services
negligence. Even with the use of an LLC, LLP or S.C., a lawyer's
personal assets are still exposed for his or her negligence in providing
professional services.
The entire assets of the firm (including malpractice insurance) are
the first assets at risk in the event of a professional liability claim.
Next are the personal assets of the negligent attorney if the firm's
assets are insufficient to cover the claim. Use of a limited liability
organization only protects the personal assets of nonnegligent attorneys
in the firm.
Q: Will law firms that want to use an LLP, LLC or S.C. change their
insurance coverage limit because of the new rule?
A: We expect that law firms reviewing this subject will analyze their
insurance limit needs. Most firms evaluate the following criteria to
determine appropriate levels of professional liability insurance
coverage:
1) What would the clients' damage or potential loss be if I messed up
their work? How large are the matters I and members of the firm
handle?
2) What would the firm lose if its insurance limits were insufficient
to cover a claim?
3) What could the attorney(s) who worked on the matter lose from
personal assets if the malpractice insurance and firm assets were
insufficient to cover the loss?
Q: Do the new rules create any risks for lawyers who supervise the
work of other attorneys, or who act in management capacities or on
review committees (that is, a legal opinion review committee) within the
firm?
A: Lawyers have a continuing duty to teach and supervise and to
implement responsible programs to allow their firms to serve clients;
consequently, lawyers who are fulfilling these roles within a firm may
want to have some rights to indemnification or a sharing of these risks
with other owners of the firm. We expect many firms will review their
shareholder or partnership agreements in this light.
Law firms need to consider the emotional trauma and effects on the
firm should a successful malpractice claim be made against one member
where the insurance is insufficient to cover the amount of the loss.
Melvin McCartney, U.W. 1964, is
president and chief executive officer of WILMIC.
Q: Under the new rule, will a multiple-member law firm designate an
attorney to be responsible for supervising the work product of
employees? Will there be a new duty to supervise the activities of firm
employees or the other firm owners because of the elimination of the
general partner liability concept?
A: We do not have answers to these questions. But if a firm has
adequate professional liability limits, questions like this never may
have to be answered.
Wisconsin
Lawyer
