A professional practice differs fundamentally from a commercial business. The latter rests on capital and goods, while the former rests on personal competence, trust, and professional licensing. Establishing a law, accountancy, engineering, or consultancy practice therefore requires more than satisfying the companies legislation. The requirements of the legislation regulating the profession itself must also be met. This dual regime is the source of most errors professionals make on formation, on taking partners, and on expansion. This article explains the framework in Kuwait.
Features of a Professional Firm
A professional firm has characteristics imposed by the nature of its activity that distinguish it from a commercial company:
- Personal character: engagement rests on the professional's person, competence, and reputation, making it closer to a partnership than to a capital company whatever its legal form.
- Professional licensing: registration in the commercial register is not sufficient. A licence from the body regulating the profession is required, together with registration of the partners on the professional roll.
- Limited effect of limited liability: even where the firm takes a form limiting partners' liability, personal professional liability for professional error remains with whoever committed it. A professional cannot shelter behind the legal form.
- Ownership restrictions: the regulation of many professions requires that the partners, or most of them, be licensed to practise, preventing non-professional capital from controlling technical decisions.
- Prohibited activities: a professional firm may not carry on commercial activity unrelated to its profession, preserving professional independence.
Licensing and Registration Requirements
Licensing requirements are broadly similar across professions though their details differ:
- Academic qualification: an accredited degree in the discipline, which may require equivalence certification if obtained abroad.
- Practical experience: a period of training or practice under the supervision of a registered professional, required in professions such as law and accountancy.
- Good character: no conviction for an offence involving dishonesty, a continuing requirement rather than one applying only at registration.
- Exclusivity: some professions require full-time practice and prohibit combining it with other employment, preventing conflicts of interest.
- Professional subscription: payment of registration and annual fees, lapse of which may suspend the licence.
- Premises: independent premises meeting the requirements are required, and practising from residential premises or premises shared with another activity is generally not accepted.
Professional Liability
Liability is the most serious risk facing a professional practice and takes several forms:
- Obligation of means: a professional's obligation is to exercise the care of a diligent practitioner in the same circumstances rather than to achieve a result. A lawyer does not guarantee success, nor a physician recovery.
- Obligation of result by exception: in tasks of a defined mechanical character, such as a formal step within a deadline or a precise numerical calculation, the obligation approaches one of result, and non-achievement suffices.
- Personal liability: a professional answers personally for their error even where committed within a firm, and the firm may be jointly liable depending on its form and the governing rules.
- Liability for a colleague's error: varies with legal form. In some forms liability extends to all partners, a decisive consideration when choosing the structure.
- Disciplinary liability: independent of civil and criminal liability, imposed by the professional body and extending to removal from the roll, whose effect on a career may exceed any award of damages.
Partnership with Non-Professionals and Expansion
Many practices seek funding or managerial partners, and legal risks abound here:
- Sham partnerships prohibited: a professional may not act as a front for an unlicensed partner who actually runs the practice and takes its returns. This is a serious breach that may lead to revocation of the licence.
- Management services agreements: contracting with a company for administrative or technical services at a defined fee is permissible provided it does not extend to controlling professional decisions or sharing fees in a prohibited manner.
- Alliances with foreign firms: subject to controls varying by profession, and may be limited to cooperation and referral without shared ownership.
- Branches: opening a branch requires separate authorisation and a responsible professional in charge, and inclusion in the original licence is not sufficient.
- Firm names: the naming of professional practices is subject to controls preventing misleading impressions or suggestions of capabilities that do not exist.
Fees, Conflicts, and Confidentiality
Three areas form the core of professional ethics with direct legal effect:
- Fees: should be fixed in a written agreement of clear scope. Assessment is subject to professional criteria preventing excess, and disputes may be considered by the professional body or the courts.
- Conflicts of interest: accepting an engagement conflicting with the interest of a current or former client is prohibited, and a conflict check should be run and documented before accepting any new engagement.
- Confidentiality: a continuing obligation that does not end with the engagement and extends to all staff of the practice rather than the professional alone.
- File retention: practices must retain client files for a defined period and deliver them on request, and a clear policy on this prevents disputes.
- Professional advertising: subject to restrictions preventing exaggeration, comparison, and guarantees of outcome, unlike ordinary commercial advertising.
Professional Indemnity Insurance
An essential risk management tool still insufficiently adopted in the region:
- It covers claims arising from professional error and usually includes legal defence costs in addition to damages.
- Accurate disclosure of the nature and scale of the practice is required at underwriting, and concealing a material fact may avoid cover.
- Most policies operate on a claims-made basis rather than by reference to the date of the error, a fundamental difference when changing insurer.
- Intentional acts and fraud are ordinarily excluded. Insurance covers error, not crime.
- The limit of indemnity should be reviewed periodically against the scale of the practice and the value of the matters on which it advises.
Practical Guidance
- Choose the legal form after considering its effect on liability rather than on tax and procedure alone.
- Put in place a written partnership agreement addressing profit sharing, management, exit mechanics, and the effect of a partner being struck off the professional roll.
- Establish a conflict-checking system before accepting any engagement and document the outcome.
- Record the scope of every engagement in writing. Most professional liability disputes arise from differing understandings of the limits of the work.
- Review the validity of your licences and registrations periodically, as lapse disrupts work and may invalidate certain steps.
- Do not accept a funding arrangement that compromises the independence of your professional judgment however attractive the terms.
Building a professional practice on a sound legal foundation protects the professional and their clients alike and averts risks capable of undoing years of work. Yamnak Law Firm advises on establishing professional entities, drafting partnership agreements, and reviewing cooperation arrangements, and defends professional liability claims and disciplinary proceedings.
