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Multi-State Firms Take Advantage of Illinois' Limited Liability
Effective July 1, 2003, pursuant to rules recently adopted by the Illinois Supreme Court, law firms with Illinois offices will be able to practice as limited liability partnerships (LLPs). In addition, co-owners of law firms organized as limited liability legal entities (ie, as members of LLPs or limited liability companies (LLCs), or as shareholders of professional corporations (PCs)) will be able to avoid exposure to vicarious liability for malpractice committed by other lawyers in their firms, if their firms meet and maintain specified minimum amounts of malpractice insurance or other proof of financial responsibility.
Many Illinois-based firms, including those with multi-state offices, are expected to take advantage of the vicarious liability protection procedure. A number of large law firms based outside Illinois having Illinois offices are also expected to take advantage of the new rules. The rule change also will permit several 'national' firms to abandon their cumbersome multiple entity legal structures previously adopted to deal with the absence of a rule permitting firms to practice in Illinois as LLPs. The Supreme Court's action is particularly timely because the Illinois Uniform Partnership Act was amended last year to broaden the limited liability protection afforded partners of LLPs formed in Illinois. See Sheldon I. Banoff, 'Illinois Developments Are Good News for Multistate Law Firms Across the Country,' 8 LFPBR 5 (November 2002).
Prior to the rule change, Illinois was the only state that explicitly held all members of law firms (regardless of legal form) to be liable for the wrongdoings of their co-owners. Illinois Supreme Court Rule 721(d) stated that the articles of incorporation or other organizational document of a PC, PA or LLC shall provide, and in any case the owners of such limited liability entities (partners) shall be deemed to agree, that the partners are jointly and severally liable for the acts, errors or omissions in the performance of professional services committed by any firm lawyers or employees. By its terms all partners, not just those practicing in Illinois, potentially were subject to vicarious liability. Thus, Illinois operated as the lowest common denominator for multi-state law firms.
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