Legislature(1995 - 1996)
03/29/1996 01:30 PM JUD
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
SB 186 LIMITED LIABILITY PARTNERSHIPS CHAIRMAN TAYLOR called the Senate Judiciary Committee to order at 1:40 p.m. Also present were Senators Green and Miller. The first order of business before the committee was SB 186. SHERMAN ERNOUF, legislative aide to the Senate Labor and Commerce Committee, gave the following summary of SB 186. The bill was introduced by way of request, has been worked on for two years, and has had extensive input from Alaska bankers, the Alaska Board of Certified Public Accountants, and the Division of Banking and Securities. The limited liability partnership (LLP) is a new type of general partnership that is sweeping the nation. The District of Columbia and 38 states have adopted the LLP as a business form, and 12 states, including Alaska, are considering this type of legislation in 1996. The LLP is particularly appealing to small businesses and start-up ventures. The benefits to an LLP are: it is simple to and operate because there are no required articles of incorporation, board of directors' meetings, shareholders arrangements, etc.; tax liability flows through the LLP directly to the partners themselves; and it provides for partial limited liability for its partners. Individual partners in an LLP are not personally liable for the debts and obligations of the LLP arising out of errors, omissions, negligence, incompetence, or malfeasance committed in the course of the partnership business by another partner, or representatives of the partnership not working under their direction or supervision. All partners are personally liable for their own acts and omissions and for the acts and omissions for those persons over whom they exercise control. Additionally, all partners continue to be personally liable for all other debts and obligations of the partnership itself. The LLP remains liable for all actions of its owners and employees, and the LLP owners personally remain liable for those persons under their control. Beyond any investments in the LLP itself, the personal assets of the owners and their families need not be sacrificed to pay judgments arising from events or actions over which they exercise no control. MR. ERNOUF noted concern expressed during hearings in the Labor and Commerce Committee about people switching to a limited liability partnership to avoid tax liability. The Division of Banking does not expect a mass exodus of people changing from one business form to another. The bill is narrowly tailored to assist firms that do business in several states, particularly accounting firms. He knew of no opposition to the bill. Number 107 BOB MANLEY testified in support of SB 186 since many major accounting firms are operating as limited liability partnerships in other states. CHAIRMAN TAYLOR asked if law firms could form under limited liability partnerships. PETER DINN replied a limited liability partnership is not dissimilar to a limited liability corporation; it has less limitation as to the openness of the partners, but is simpler to form and operate in. He imagined a partnership of attorneys could form as a LLP. CHAIRMAN TAYLOR asked if they would gain the ability to limit liability to only those people directly under their management or control by doing so. He was under the impression that the Professional Corporations Act did not provide any shield from liability but was created for tax and other corporate purposes. Mr. Dinn was unsure, but clarified the LLP is for those partners who are not directly involved, so that the assets of the organization are available and partners are responsible for all of the general liabilities, but it limits them from the acts of someone outside of the norm. A law firm may look to the professional corporation or sub S corporation as providing a better form of protection. CHAIRMAN TAYLOR believed there is no protection in either of those forms because liability pierces through to all members of the corporation. SENATOR GREEN moved SB 186 out of committee with individual recommendations. There being no objection, the motion carried.