International firms permitted to expand limited liability to HK

Law firms practising in Hong Kong could be permitted to establish limited liability partnerships (LLPs) from next year under new rules being drawn up by the Law Society of Hong Kong.

A law bringing local liability regulations in line with international frameworks is expected to come into force in the next 12 months after additional legislation is approved by Hong Kong's Legislative Council (Legco), the city's solicitor-general Frank Poon has indicated. 

Approval of the additional rules would allow international firms to integrate their Hong Kong businesses with their broader LLP network, instead of  ring-fencing their partnerships from their Hong Kong practices.

Senior lawyers have hailed the move as "long overdue" and making Hong Kong more "fit for purpose" for international firms.

The city's LLP regulations are governed by the Legal Practitioners Amendment Ordinance, which was introduced last July but has yet to be implemented and remains subject to subsidiary legislation being drafted by the city's Law Society.

"In the course of the next 12 months [the Law Society] will go before Legco to explain the rules," Poon said. "I'm hoping [it will become law soon] because I can see that there is interest in this development." 

In Hong Kong, lawyers can only operate as sole proprietors or general partnerships with the latter imposing unlimited liability on partners.

Under the new LLP rules, firms will be required to top up their professional indemnity insurance from HK$10m (£805,000) to HK$20m (£1.6m), irrespective of their size. 

The clawback period, or length of time partners will be required to pay back their profit share as compensation, has been limited to two years rather than the six originally proposed. Firms will also be required to name at least one supervising partner responsible for the matter in question.

Also expected to be brought into effect are laws allowing solicitors' corporations, which were passed in 1997 but never implemented. These would allow practising lawyers to work as company directors, but not be personally liable for any matter unless they held a relationship with the client.

Poon said the two models would hopefully lead to consolidation of the local industry and create more options for international firms.

Vincent Connor (pictured), Pinsent Masons' Hong Kong managing partner, commented: "In terms of making Hong Kong law for businesses consistent with other jurisdictions where they have a modern approach to this sort of structuring, then it makes sense and makes Hong Kong law more fit for purpose. 

"It's not going to remove the need for care and caution, but it will provide consistency of structure. For that reason, it is attractive."

Michael Liu, the Hong Kong managing partner for Latham & Watkins, added: "I expect we will incorporate our HK practice as an LLP in Hong Kong. This is actually long overdue and a welcome development for lawyers here."

Related: Hong Kong lawyers remain vexed by LLP issue as sticking points linger over reform