October 31, 2007
Year End Review of Law Firm Partner Agreement
Pull out that partnership agreement and take a read through. Over the course of the years, I have helped a number of firms contemplate the future. I always ask for a copy of their partnership agreement. What surprises me every time is how irrelevant the agreement has been treated. Invariably, practices in the firm are at odds with the agreement. And the departure from the agreement’s provisions usually involves the sensitive areas of partner distributions and capital contributions. Unfortunately when trouble develops, the first thing that happens is that the partner who feels aggrieved points to the agreement, i.e.,” It is all fun and games on the playground until someone gets hurt.”
Make it a habit to review the agreement annually and amend the document as appropriate. Small deviations between firm practices and the agreement accumulate into wide divides. The reason for deviating from the exact verbiage of the agreement may have been sound and partners may have mutually agreed informally, at the time, to each deviation. But the reason and the informal agreements are forgotten with the passage of time.
There is another reason to review your partner agreement: retiring partners will be a bigger issue for many law firms over the next ten years. The treatment of capital accounts and unfunded liabilities imposed by continuing origination credits or other post-retirement payments can sink the ship if excessive. When a firm goes belly up, unfunded liabilities become worthless to those who were expecting future payments. For the benefit of the partners who will be retiring and those remaining, overly burdensome provisions need to be addressed now.
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877/377-3740, e-mail info@juris.com or go to www.Juris.com.
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