Company law question (merger/LLP) from a noob

February 6, 2013 1:09 PM

I was DLA Piper's wikipedia page and came across this sentence: "It is composed of two partnerships, the United Kingdom-based DLA Piper International LLP and the Untied States-based DLA Piper U.S. LLP. The two partnerships share a single management board but are not financially integrated."

What does the above mean exactly?

May I also know what topic this falls under in company law (I think it's company law), and where may I learn more about it, ie. what are the implications, risks etc of sharing a single management board and not being financially integrated? I don't have enough context to fully understand what it means.

Additionally, what are other merger models are there? How would companies choose what sort of merger to do/what factors are taken in consideration in mergers (a.) in general, b.) in legal firms)?

Where should I begin understanding all of this? What have you found useful? I don't have a business background whatsoever.

Thank you!

posted by ethelwulf to education (7 answers total)

I don't know about DLA in particular and won't pretend to, but to cut to the chase, as a general matter it is disallowed by various legal ethics rules for US law firms to be owned by persons who are not US lawyers. (Also as a general matter, a law firm "partner" is a part owner of the firm, though not always.) There is no exception for persons who happen to be lawyers in other countries, unless they have also passed the bar in a US state. This presents a problem for law firms who aspire to have an international presence, because you have to walk a line between making everyone in all the different countries feel that they have a stake in the enterprise, while still obeying US rules about who may and may not own a law firm.

US-based firms that seek to expand overseas, or non-US firms that seek to open offices in the US, take various approaches to this. It appears that DLA's solution may have been to break it into a US-based entity and an "everywhere else" entity, that share some degree of managerial influence over one another but not technical co-ownership. There are other possible solutions as well; for instance look into the concept of a Swiss Verein.

The type of law you're talking about is called corporate law, or the law of business organizations (or "business associations"). Try looking for summary overview-type books on those subjects on Amazon; unless you have legal training you should probably try to avoid proper "case books" (used to teach the subject in law schools) because they would assume too much background knowledge in contract law, etc., to be really useful.
posted by Joey Buttafoucault at 1:31 PM on February 6 [1 favorite]

It means that the European based DLA Piper and the US based DLA Piper are not financially integrated. There might be a lots of reasons for this - tax reasons; international law reasons; international reasons related specifically to the practice of law. There are lots of different areas of the law implicated - corporate law (this addresses generally the structure of a company - here, the article apparently thinks the two entities are partnerships; the LLP indicates they are limited liability partnerships. People form this kind of partnership to limit their liability, as the name implies. The extent to which that happens and why depends on lots of things, like what state the LLP is formed in); there's tax law issues (this often has a lot to do with why people choose to structure their businesses in a particular way); there's international law issues; and there's practice-of-law issues (See Joey's comment above about non-US lawyers owning law firms, but also, generally, where are your attorneys licensed? can they practice in both countries? other countries? with/for the other LLP?). In this case, all these areas of the law overlap and interact.

There's lots of ways businesses can combine - that type of law is generally referred to as "mergers and acquisitions". Once again, it can take into account lots of other areas of law (those mentioned above; employment law also comes to mind). Sometimes one company purchases the stock of another; sometimes they purchase the assets of another; sometimes they combine in a partnership; sometimes they create a new company all together; sometimes they create a third company that "holds" the other two companies (or more). The end result, for IRS purposes, is that there are ultimately several types of business organizations - non-profits; corporations; S-corps; partnerships; sole-proprietorships. But some of these may hold and own others. And sometimes what the IRS cares about isn't the same as what other people care about (for example, in the employment law field, two separate legal entities may be found "joint employers" or a "single entity" for some purposes despite their very best wishes).

If you want to learn more of the basics of this kind of thing, you might check out business schools/colleges that offer business law classes. They tend to give a mile-high overview of these subjects, which helps you be able to spot issues as they arise, but won't give you a huge level of detail. I'm not sure how you'd go about learning the issues specifically associated with law firms, though - that's pretty specific and would require lots of reading of regulations and statutes and case law, I would think.
posted by dpx.mfx at 1:43 PM on February 6

There are other possible solutions as well; for instance look into the concept of a Swiss Verein.

DLA Piper is listed in that Wikipedia article as an example of a Swiss Verein-structured business, albeit without citation.
posted by zamboni at 1:48 PM on February 6

"Not financially integrated" means that each partnership, independently of the other, reports its income, expenses, taxes and distributions to its partners. They don't share any of those things between them.
posted by megatherium at 1:54 PM on February 6 [1 favorite]

Also, regarding the single management board - the partnership agreements for each firm probably spell out specifically how the management of the firm will be handled (at the large firm I used to work at, there were two "managing partners" who had separate responsibilities more or less broken down into "inside duties" and "outside duties." There were also several committees - one for hiring; one for compensation; one that made decisions on special fee arrangements; one for marketing. These committees were sometimes elected and sometimes appointed, as spelled out in the partnership agreement.)

Presumably, each firm has its own structure and then has people who sit on this "single management board" who oversee the good of both the firms. This whole thing is presumably a way for DLA Piper to provide international services to its clients while not running afoul of the various laws and ethical rules. Again, at my former big firm, the firm was membership of a group of law firms that provided international law support to its clients through friendly referrals - we knew good law firms in almost every country, but we weren't in any way financially or structurally the same business. DLA Piper wanted to be more integrated than that, evidently.
posted by dpx.mfx at 2:02 PM on February 6

May I also know what topic this falls under in company law (I think it's company law), and where may I learn more about it, ie. what are the implications, risks etc of sharing a single management board and not being financially integrated? I don't have enough context to fully understand what it means.

It means that they are two completely separate companies, which happen to be run by the same people. They keep separate books, and an employee of one is not an employee of another.

When I worked for a McDonald's franchisee, it was set up kind of like this. He owned 4 stores. Each store was held by a separate holding company, and there was a fifth holding company that all the managers and admin people were employed by. The owner just happened to be the owner of all five of these companies. All five were their own separate entities, such that any one of them could be sued into oblivion, or sold off, and the rest would remain intact. We were also financially separate, so any inventory transfers had to be properly accounted for. (At the end of each month, the bookkeeper had to write a check from one corp to another to balance any transfers out.)

And actually, when the owner retired and divested the stores, they were sold to different ownership groups. Instead of having to figure out how to separate everything up fairly, each was its own intact entity.

It was no different than if the same guy owned a McDonald's, a gas station and an accounting firm. Each would naturally be its own separate corporation. The profits and losses flow to the owner(s) of the corporation, regardless of whether that owner just controls one entity or a hundred.

It seems like it would be more complicated to have a lot of different companies for the same business, but it actually makes a lot of things simpler. Each location has its own taxing bodies and regulatory bodies, and it's way easier to keep all the financials separate.
posted by gjc at 5:42 PM on February 6

It means they are trying to avoid some kind of liability. That's what these complicated corporate structures always mean, nine times out of ten, even though in reality they are one entity.
posted by yarly at 8:49 AM on February 7