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    Wisconsin Lawyer
    May 01, 1997

    Wisconsin Lawyer May 1997: Question and Answer: Limited Liability Practice

    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


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