03/29/1996 01:30 PM Senate JUD

             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.