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The Professional Development Group, looks at the impact which the world financial crisis may have on how international law firms view the future for their businesses in Hong Kong and China.
There can be little doubt that we are all living in very uncertain times. Many commentators are of the view that the world financial crisis will have a significant impact not only on the way banks, corporates and service providers operate in the future but also on where geographically they will prioritise their businesses. The legal profession will not be immune to such impact and this will have a direct effect on how firms develop their international strategies.
There is a credible argument to be put forward that economic influence and power on the world stage is shifting and whilst there may not be an actual decoupling of the US from other major economies in Europe and Asia, China is now a world superpower. In addition to strong economic fundamentals, it has also been less exposed to the issues which have brought the US financial system to its knees. Having successfully completed the 2008 Olympics and significantly enhanced its brand worldwide, China is seen by many as the obvious place in which to invest for the future.
For law firms in the United States and Europe there are certainly tough times ahead. Already we have seen lay offs in the US and UK with a number of firms significantly revising their budgets for 2009. There has also been a growing trend amongst some firms to relocate under utilized partners from their home jurisdictions to offices in China. The fact that a China strategy is increasingly important to many law firms is also reflected by the growing number of firms from the States and elsewhere seeking to set up in Hong Kong, China or, in some cases, both markets.
The Director of Professional Development Asia, a specialist legal consultancy which provides strategic advice and merger and acquisition services to law firms seeking to enter the China market, commented:
"We have acted for several international firms who have set up offices in Hong Kong over the last year and are currently advising a number of other potential entrants to the market. Without exception all such clients see the establishment of offices in Hong Kong and the PRC as an extremely important part of their international strategy. In many cases the need to establish a presence here is led by their clients who are expanding operations in this part of the world and expect their law firms to be able to service them on the ground. For others it is the ability to provide niche practice area services not previously available in the local markets."
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A partnership is created when two or more people carry on a business for profit. A partnership is created even when there is no written partnership agreement between the parties. As soon as the parties get together to form the partnership and begin carrying on the business for profit, a partnership is created, even if it was not the intent of the parties to form a partnership. The partnership is governed by the laws of the state in which it is formed.
Formalities
A partnership, unlike a corporation, is not required to follow many formal procedures such as: meetings, preparation of minutes, election of officers, or issuance of stock certificate. Unless otherwise specified in a partnership agreement, partners will equally share in the management of such partnership, management of profits and losses, and equal responsibility of its debts and liabilities.
Written Agreements
Though a written agreement for every partnership is not required by law, it is still wise to have one. Without a partnership agreement, the partnership will be governed by the State's default rules which may not reflect the wishes of the parties.
Taxation
The Partnership profits "pass through" to the partners and the partners then pay income tax on the monies they receive.
Liabilities
Partnerships not only share profits and responsibilities equally, but they also share in liability for business debts. Unlike corporations and limited liability companies whose owners are not personally liable for business debts, owners of partnerships are personally liable for business debts or business-related obligations. Any creditor can come after the personal assets of a partner in order to satisfy the debts of the business. Further, partners are liable for the torts committed by their partners if committed within the scope of their business duties.
Partnerships vs. LLCs
Unlike with a partnership, limited liability company (LLC) business owners need to file articles of organization with their state's LLC filing office and comply with other state filing requirements in order to become an entity. Also, while partners in a partnership are liable for the debts of the business, members or owners of an LLC are not personally liable for the company's debts and liabilities.
The one similarities that an LLC and a partnership do share is that that owners of both business income or losses on their individual tax returns; the partnership or LLC itself does not pay taxes.
Limited Partnership
Limited partnership has at least one general partner who controls the company's day-to-day operations and is personally liable for business debts; they also have passive partners called limited partners. Limited partners are contributes capital to the business but has minimal control over daily business decisions or operations. Because they are not involved in the day to day operations, the limited partner's liability is capped at the amount of his or her investment. But, a limited partner who starts tinkering with the management of the business can quickly lose limited liability status.
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