I am a sole practitioner in Peoria, Illinois. My firm is a general practice firm that services clients throughout Central, Illinois. I have four staff members. I am fifty eight. While I have enjoyed having my own practice for the past twenty years I am concerned – what if something were to happen to me today or tomorrow – what is my backup plan in the event of short-term illness, disability, death, and even vacations. How would the firm keep operating? Who would take care of the client’s needs? How would my staff be taken care of?
Sound practice continuation arrangements can solve this dilemma and preserve practice value and can help prevent a lawyer’s spouse or immediate heirs from facing a hasty sale or disposition of the practice in an emergency. A practice continuation arrangement can also give lawyer practitioners, their staff, and their family’s peace of mind.
A practice continuation arrangement is an arrangement – typically in the form of an agreement or contract made between an individual lawyer or a small law firm and another lawyer or law firm. The arrangement describes a course of action to transfer a lawyer’s practice and sets payment for its value. In the event of vacation, temporary or permanent disability, or death, a practice continuation arrangement protects the practice, the business interests of the lawyer or law firm’s clients and the financial interest of the lawyer and his or her family.
There are different kinds of practice continuation arrangements. Typically, a lawyer enters into a one-on-one agreement with another sole proprietorship, partnership, limited liability company, or professional corporation in the community. Agreements can range from simple “dual coverage for each other” for vacation or other temporary absences to sale of the practice in the event of long-term disability or death.
A practice continuation agreement’s provisions for the sale of a practice must contain a reasonable valuation and a realistic payment structure. What lawyers really want is to leave to their surviving spouses or heirs is something from all the hard years of work it took to build the practice. To accomplish this end, selling the practice at a buyer friendly price may be necessary. Law practices can lose value very quickly, so timing is vital.
Lawyers must invest time and effort to find suitable successors for their firms and to create useful, equitable, practice continuation agreements. The key is to finding the right person or firm. The investment of time is a good investment, however, because a good practice continuation arrangement will ensure that if a lawyer is unable to continue managing the practice, the value he or she has built over the years will not be lost. An orderly transfer of a practice to another lawyer or law firm is a substantial financial benefit to the lawyer’s family. At the same time, through the handpicked successor, the lawyer fulfills his professional responsibility to his clients. Lawyers who do not have these agreements should learn more about preserving the value they have created.
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John W. Olmstead, MBA, Ph.D, CMC
Posted at 06:35 PM in Succession/Exit Strategies
Tags: Continuation, Law, Plan, Practice