If you are preparing to form a law firm partnership, no doubt you will want to carefully craft what to include into your agreement.
A solid agreement will include certain essential elements necessary to define each person’s rights and responsibilities, as well as provisions for running the company in all manner of situations that could arise.
It is advisable to check with your local bar association to view sample law firm partnership agreements to ensure you have not missed any of the important considerations.
Today, I will touch briefly on the main points that you are going to want to include in your document.
Let’s get started shall we.
Not only should the agreement identify the partners involved, but it should address the process for adding new partners down the line.
This section should cover how the decision to bring on new partners is going to be made, what type of voting will be taken, whether or not a buy-in will be required, and how to calculate the amount.
Decisions and Voting
In fact, you will want to address how you will vote on all your decisions, not only on the intake of new partners.
Take the time to explore the various decision-making options such as majority, super-majority and unanimous, as well as whether your firm will use per capita versus weighted voting.
Per capita means one partner one vote, and weighted voting means that a partner’s vote is weighted depending upon their respective interests in the firm.
Legally speaking, if you do not address the duration of your partnership in your agreement, the death of one of the partners would terminate the partnership.
Make sure to include a provision that states the partnership will in fact survive the death of a partner.
Note that this provision is not necessary in a professional association or a limited liability company.
This section will address how much money each person is contributing to the start-up, as well as how the funds necessary to cover emergency cash flow, and expansion will be acquired and managed.
You need to make sure to address the basic question, “What will we do if the firm needs more money?”
How you will distribute your profits is obviously a critical area of your partnership agreement.
It is generally recommended that the best course is to create the structure in the partnership agreement and leave the details to how the profits will be allocated to a vote of the partners.
The idea is that you don’t want to have an agreement that needs to be amended every time there is a change in allocating the compensation.
Retirement provisions can be either voluntary or mandatory. Law firm consultant, Arthur C. Greene suggests an excellent provision for older partners, that allows for annual contracts on a case-by-case basis.
In such a provision, the partner who still brings great value to the firm can be retired from the partnership under the mandatory retirement provision and then enter into a one-year contract,
subject to renewal, for a certain level of services on an annual basis.
This is an excellent way to allow protection from the older partner who is both unproductive and a risk, while at the same time allowing the valuable lawyers to work beyond the mandatory retirement age at the discretion of the firm.
Disability and Death
This is a matter of prudent and proactive forethought, as accidents of course do happen. So, this section should detail compensation, provisions for paying the estate of a deceased partner, insurance, trusts and wills.
The more you lay out before hand, the easier it is to deal with these difficult situations when they occur.
If a partner decides to leave the firm voluntarily, provisions must be ready to address this situation.
Some firms use the same provisions as in the case of a death in the partnership, while others write in a disincentive through a separate financial arrangement.
Your agreement should discuss the due causes for expulsion, including a partner being disbarred, criminal activity, bankruptcy, etc.
The agreement should also detail the rights of the expelled partner, and whether a return of capital will be made.
Again, the duties and responsibilities should be clearly outlined in the case of dissolution. Be comprehensive and proactive in the measures you include to avoid serious hassles down the road.
As you can see, there is much to consider when forming your law firm partnership agreement.
This is not a process to be rushed.
Although not legally required, it is advisable to seek the counsel of a mentor or consultant for feedback and guidance to make sure that you have included the proper provisions into your agreement.
I am always available to discuss helpful ways for you to create the agreement that best suits you without causing undo amounts of stress on top of your already busy workload.
Contact me at your convenience.
Until next time!