Law Practice Management Asked and Answered Blog
Category: Buyouts in contingency fee law firm
Jun 11, 2013
Law Firm Buyout Arrangements in a Contingency Fee Practice
Question:
I am a partner in a four partner law firm in Cleveland, Ohio. Our firm does class action contingency fee cases and all of our fees are contingency fee. We do keep time of our time expended on these cases even though we don't bill by time. One of our partners has announced that he will be withdrawing from the firm. We each have 25% ownership interests. How do we value the firm and determine his buy-out. Our partnership agreement does not address this nor do we have any precedent. Do you have any suggestions?
Response:
The real value component is the value of your unsettled cases and it will be difficult – if not impossible – to determine the value of these cases until they are concluded in the future. Some firms payout the capital account and the value of the hard assets upon departure or over a relatively short payout period and they have a future payout formula for the cases in progress as the cases are concluded.
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John W. Olmstead, MBA, Ph.D, CMC
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