As we suggested in part one of this series, exit planning is a hot topic, and the end of a legal career is a certainty for all who practice the law. In spite of that, many attorneys reach that point without considering and preparing a succession plan. The American Bar Association estimates a vast majority of lawyers, particularly solo practitioners, do not have a plan in place. Likely, this is because it takes time and commitment which can be challenging when running a busy law practice. However, attorneys who develop a plan – and do it early – are in a better position to protect their clients, employees, family and reputation. Exit strategies encompass any one of a number of different scenarios including: (1) selling the law practice; (2) internally transitioning the law practice to another attorney in the firm; or (3) winding down and closing the doors of the practice.
Selling a Law Practice
The current version of Rule 1.17 of the Rules of Professional Conduct permits a lawyer or law firm to sell or purchase a law practice or area of law practice, including good will, if certain conditions are met. The Rule requires the selling attorney to discontinue the private practice of law, or the area of practice that has been sold, within a one-hundred (100) mile radius of the purchased practice. The Rule also requires that the seller’s entire practice, or an entire area of practice, be sold. In addition, written notice of the proposed sale must be sent to all clients who are currently represented by the seller and to all former clients whose files will be transferred to the purchaser. However, at its last quarterly meeting in July 2013, the Ethics Committee voted to adopt a proposed change to Rule 1.17 which would permit a lawyer to continue to work for the law practice as an employee after its sale. This would allow a senior selling attorney to remain in the practice during a transition period which would, in turn, create a more seamless transition for clients, staff, and the purchasing attorney. (See prior blog article, “Now You Can Retire…Or Not”).
Often the lawyer interested in selling his or her law practice already has qualified and interested buyers employed at the firm. Regarding the transition of a law practice to a current employee, 98 Formal Ethics Opinion 6 rules that the requirements for selling a practice set forth in Rule 1.17 do not apply to the sale of a law practice to lawyers who are current employees of the firm. In addition, the law firm may continue to include in the firm name the name of a retired attorney who practiced with the firm up to the time of his retirement if that attorney has ceased the practice of law.
Aside from the multitudes of ethical considerations, it can be challenging to determine how to value and set a price for a law practice. Attorneys may have inaccurate perceptions that their practice has little or no real value; however, that is usually not the case. One way to ensure an objective valuation is to hire a business appraiser and/or a professional business broker. The consultant can assist in not only determining the value of the practice, but also providing knowledge of the process, marketing the practice, dealing with unqualified buyers, attracting qualified buyers, and negotiating a price once a qualified buyer is located.
Deciding to sell, understanding the ethics involved, and determining the value of a practice is really just the beginning. In part three of this series, we will provide a comprehensive checklist for selling a law practice.
Closing the Doors of a Law Practice
Closing, as opposed to selling, the law practice, involves different issues. The most important considerations are to start early, create and utilize a timeline and checklist, and update it often. The process should be implemented over a period of six months to one year at a minimum. In part three of this series, the checklist discussed above will also include a section on closing a law practice.
At this point, you may be thinking retirement is too far into the future to even consider selling or closing your law practice. However, at a minimum, it is important to plan for contingencies in the event of the unexpected. Advance designation of another lawyer to assist with client matters is critical when a temporary disability or emergency occurs. Lloyd Cohen is a solo practitioner and the author of Being Prepared: A Lawyer’s Guide for Dealing with Disability or Unexpected Events. Mr. Cohen’s own office experienced a short shutdown due to his sudden illness:
During my absence from the office, my manual is getting its first real-life test. The good news is that having a manual available has been a comfort that helped the office to continue to run smoothly. Those closest to me were able to check the physical and clerical aspects of the office. Lawyers with whom I’ve developed a rapport for such a contingency were notified. A lawyer was able to screen both the physical and electronic calendars for appointments, court appearances, and deadlines. Rescheduling client appointments far ahead of time was appreciated. Immediately directing e-mail to auto-reply “out due to illness” worked well. Bill-pay and money-transfer functions were attended to. Having my medical contacts and information organized was helpful. I found that keeping updated with the continuing evolution of technology and proliferation of passwords to be a challenge, but overall, client confidence was maintained and opposing counsels cooperated.
Lloyd D. Cohen, How My Emergency Plan Saved My Practice, GPSOLO, a publication of the American Bar Association, vol. 29, no. 4.
Mr. Cohen, in his manual, advocates safeguarding your practice with five practical steps: “Define, Enable, Empower, Keep, and Inform.” Even if you do not have time for the entire manual, his short article, “How My Emergency Plan Saved My Practice”, is worth the ten minute read and may be the spark to encourage you to create a plan so your clients and your practice aren’t left in the dark.