Solicitor Corporations

The background to the proposal that solicitors be permitted to incorporate is set out in the extract from the Consultation Paper on Legal Services at annex 1.

English position

2. At annex 2 is an extract from the Final Report of the English Royal Commission on Legal Services (October 1979) which recommended that solicitors be permitted to incorporate with unlimited liability. Paragraph 30.24 of that report sets out the safeguards that the Royal Commission thought should be imposed.

3. The English legislation that permitted incorporated practices (sections 9 and 10 of the Administration of Justice Act 1985 as amended by the Courts and Legal Services Act 1990) is at annex 3. Those sections provide only that -

  1. the Law Society may, with the concurrence of the Master of the Rolls, make rules in respect of such practices;
  2. certain sections of the Solicitors Act 1974 do not apply to a "recognised body";
  3. a certificate signed by an officer of the Law Society stating that a body corporate is or is not a recognised body shall be evidence of that fact;
  4. Schedule 2 of the Act (providing for the application of provisions of the 1974 Act to recognised bodies and for other matters relating to such bodies) shall have effect; and
  5. the Lord Chancellor may by statutory instrument provide for existing legislation relating to solicitors to apply to recognised bodies.

4. A statutory instrument was subsequently made under the power referred to in paragraph 3(5) above (the Solicitors’ Incorporated Practices Order 1991). The combined effect of Schedule 2 of the 1985 Act and the 1991 Order is to place a recognised body, for practical purposes, in the same position as a solicitor or firm of solicitors, and to impose on it similar legal requirements.

5.The provisions of the 1985 Act came into force on 1 January 1992. On the same date, the Solicitors’ Incorporated Practice Rules 1988 (‘SIPR’), made by the Law Society, came into force. A summary of the SIPR is at annex 4. Paragraphs 5 to 9 refer to essential safeguards in the rules, which are along the lines of those recommended by the Royal Commission. The Rules do, however, permit limited liability companies, provided that "top-up insurance" is obtained up to a specified level.

6. The Law Society has also made the following other rules that contain provisions relating to recognised bodies: Solicitors’ Indemnity (Incorporated Practice) Rules; Solicitors’ Practice Rules, Solicitors’ Overseas Practice Rules, Solicitors’ Accounts Rules, Solicitors Investment Business Rules, and Accountants’ Reports Rules.

Australian position

2. In Australia, legal practices are able to incorporate in five jurisdictions, but the company directors must carry unlimited joint and personal liability. Proposals are being considered in some jurisdictions to "cap" the liability of lawyers and other professionals for losses caused by their negligence.

3. The Australian Government’s "Access to Justice" report of 1994 commented that -

"Restrictions on incorporation and the requirements of unlimited liability may increase business costs and reduce the capacity of law firms to expand and become more efficient. Assuming that all lawyers remain subject to compulsory professional indemnity insurance, limited liability incorporation could be introduced so as to retain unlimited personal liability in solicitors for their own professional malpractice but not for that of their partners."

4. The Final Report of the Australian Trade Practices Commission, in March 1994, stated that -

"the Commission continues to support the arrangement proposed in the draft report, whereby lawyers opting to incorporate would have the choice of limiting their liability for malpractice to the extent that they would not be jointly liable for the malpractice of other equity holders but individual equity holders would have unlimited liability for their own malpractice. Compulsory professional indemnity insurance would also be maintained, giving clients potential redress up to the value of the insurance cover and the personal wealth of the relevant practitioner."

5. The legislation in New South Wales relating to solicitor corporations is found in part 10A of the Legal Profession Act 1987. Its main provisions are as follows -

(a)

  1. the Law Society’s approval is required for incorporation and for any alteration of the corporation’s memorandum or articles or name; appeals against a refusal are possible;
  2. the corporation must be registered with the Corporate Affairs Commission;
  3. there must be no limit placed on the liability of the corporation’s members (except as provided by the legislation);
  4. only solicitors, solicitors corporations or foreign solicitor corporations, each holding a current practising certificate, may hold voting shares in the corporation;
  5. only a limited class of persons (including relatives of a solicitor) may be non-voting shareholders;
  6. the liability of non-voting shareholders on the winding-up of a corporation is limited to the amount unpaid on their shares;
  7. each director must be a natural person holding a voting share in that or another solicitor corporation, and at least one director must hold a practising certificate;
  8. the Companies Code and regulations apply to a corporation;
  9. the corporation must not invite the public to buy its shares or debentures;
  10. there are additional grounds for winding-up the corporation;
  11. the legislation prevails over any inconsistent provisions of the corporation’s memorandum or articles;
  12. where the law authorises or requires a solicitor to do any thing, that thing may be done by a corporation (unless it can only be done by a natural person);
  13. legal professional privilege applies to a corporation;
  14. a solicitor may be guilty of misconduct even though his actions occur while he is engaged in the business of a corporation.

Professional Accountants (Amendment) Ordinance 1995

2. The Professional Accountants (Amendment) Ordinance 1995 enables professional accountants to incorporate their practices. A copy of the main sections relating to incorporated practices is attached at annex 5, with key provisions underlined.

The Legal Services Legislation (Miscellaneous Amendments) Bill

2. The provisions relating to solicitor corporations in the current Bill are similar to those in the English legislation, but with additional safeguards found in the New South Wales legislation added. The proposed new sections to be added to the Legal Practitioners Ordinance are as follows -

Part IIAA (see clause 2)

s.7B

definitions


s.7C

Law Society may approve solicitor corporations

(cf. NSW)

s.7D

Solicitor corporation may or must do anything that a solicitor can or must do

(cf. NSW)

s.7E

Law Society approval is required for an alteration of memorandum or articles or name

(cf. NSW)

s.7F

No shares or debentures in a solicitor corporation may be offered to the public

(cf. NSW)

s.7G

Additional grounds for winding-up a corporation may be specified in rules made by the Chief Justice

(cf. NSW)

s.7H

There is a right of appeal to the High Court in respect of certain decisions of the Law Society

(cf. NSW)

s.7I

A roll of solicitor corporations is to be kept.

(cf. NSW)

s.7J

Legal professional privilege applies to a corporation

(cf. NSW)

s.7K

The new Part of Cap.159 and rules made for the purposes of that part prevail over anything in the memorandum and articles.

(cf. NSW)

s.7L

The Companies Ordinance applies to a solicitor corporation

(cf. NSW)

s.9AA

(clause 4)

Misconduct of a member or employee of a corporation may be dealt with in the same way as the conduct of a solicitor or employee of a solicitor

(cf. NSW)

s.74B

(clause 6)

A certificate purporting to be signed by Secretary-General of the Law Society stating that a corporation is or is not on the roll is evidence of that fact

(cf. England)

Amendments to sections 73 and 73A

(items

101 to 108 of Schedule 1)

The Law Society may with the prior agreement of the Chief Justice make rules (including indemnity rules) relating to solicitor corporations

(cf. England)

Other consequential amendments to Cap.159 relating to solicitor corporations are contained in Schedule 1 to the Bill (cf. England). The general effect of these consequentials (summarised at annex 6) is that provisions in the principal Ordinance relating to solicitors apply equally to solicitor corporations. Those provisions which prohibit persons other than solicitors from doing certain acts are amended so that solicitor corporations may do them (cf. England, noted in paragraph 3(2) above).

13. If the provisions in the Bill are enacted, it would be necessary for the following rules to be made -

  1. new rules relating to solicitor corporations; and
  2. amendments to existing rules (where appropriate) so that they apply to solicitor corporations.

    Those rules will need to be tabled in the Legislative Council and can be amended by the Legislative Council. The Attorney General would not bring the new statutory provisions into force until the necessary rules are in place.

Development of solicitor corporations elsewhere

13. The extent to which solicitor corporations are established in jurisdictions which allow them depends on various factors, including the tax implications of incorporation.

14. At annex 7 is a copy of an extract from the English Law Society’s Gazette of 1 May 1996 outlining the emergence of solicitor corporations in England.

Last Updated on 15 December 1998