Law Practice Management Asked and Answered Blog

Category: Counsel

Aug 01, 2018

Law Firm Merger or Of Counsel Arrangement and Due Diligence Information from Larger Firm

Question: 

I am a solo practitioner in upstate New York and I hope to retire three years from now and move to Florida and spend my retirement years there with my family. I have been talking with a larger firm, twenty-attorneys, in Albany that has an interest in me either merger my practice with their firm or joining as Of Counsel. My plan would be to work three more years, gradually phase back, and transition clients and referral sources.

I have had several meetings with the partners in the firm and they are now asking me for detailed due diligence information – tax returns, financial statements, etc. I have no problem providing these documents however I was wondering if I should be asking them for information. What do you think?

Response:

I believe that you are entitled to similar due diligence information from the other firm. You need to see what you are getting into.

Usually the smaller firm gets less – but they should share some information with you as you have with them.

I would ask for the following from them (or discuss with them):

  1. Five years profit and loss statements, balance sheets and tax returns.
  2. Lawyer and staff headcount for each of those five years.
  3. Current hourly billing rates.
  4. Description of practice area mix of clients by dollars collected – practice type and office location.
  5. Description of how the firm bills (hourly, flat rate, contingency)
  6. Copy of all leases (office space, equipment)
  7. Copy of malpractice insurance policy and last application.
  8. Salaries and benefits for equity and non-equity partners.
  9. Any governance plan or agreements.
  10. Copies of all partnership agreements or operating agreements for all business entities.
  11. Any documents pertaining to the retirement of partners including information as to obligations for partners who have already retired and those nearing retirement.
  12. Compensation data for equity and non-equity partners.
  13. Copy of the written compensation plan for equity partners if one exists or if not a discussion of how the compensation system works.
  14. Information on the line of credit and copies of all debt agreements.
  15. Copies of third party vendor agreements (equipment leases, subscriptions)
  16. Copy of the firm’s present malpractice insurance policy and most recent application.
  17. List of benefits provided.

I presume that you all have discussed any potential client conflicts of interest, etc.

You need to zero in whether the arrangement is going to be a merger or Of Counsel arrangement. If the arrangement is to be an Of Counsel arrangement the firm will be less likely to be willing to share all the information on the list and you will have less need as well. However, I believe you should at least have the basic financial and compensation information.

Click here for our blog on mergers

Click here for articles on other topics

John W. Olmstead, MBA, Ph.D, CMC

 

May 08, 2018

Of Counsel Arrangement as a Law Firm Exit Strategy

Question: 

I am the owner of a solo real estate practice in Merced, California. I have two staff members that work for me. I am the only attorney in the firm. I am sixty years old. While I am concerned about the long term exit from the practice I am also concerned about office coverage in case something would happen to me in the short term. I appreciate any recommendations that you may have.

Response: 

Forming an Of Counsel relationship with another firm is an option that many solos are taking. Sometimes it is a final arrangement where a solo winds down his or her practice and then joins another firm as an employee or independent contractor. He or she is paid a percentage of collected revenue under a compensation agreement with different percentages depending upon whether the practitioner brings in the business, services work that he or she brings in, or services work that the firm refers to the practitioner. In other situations, an Of Counsel relationship is used as a practice continuation mechanism that provides the solo with additional resources and support if needed. An Of Counsel relationship can also be used to “pilot test” a relationship prior to merging with another firm. We have had several law firm clients that has taken a phased approach to merger with Phase I being an Of Counsel “pilot test” exploratory arrangement and Phase II being the actual merger.

Click here for our blog on succession

Click here for out articles on various management topics

John W. Olmstead, MBA, Ph.D, CMC

 

Sep 09, 2014

Law Firm Staffing and Growth Models – Lateral Partners & Of Counsel

Two weeks ago I was asked by the managing partner of a 16 attorney insurance defense firm about staffing and growth models for an insurance defense firm and I listed the following models and discussed the first model – grow your own associate staffing.

Attorney staffing/growth models include:

  1. Grow Your Own Associate Staffing
  2. Lateral Associate Staffing
  3. Contract – Staff Associate Staffing
  4. Lateral Partners (Equity or Non-Equity)
  5. Of Counsel (Various Approaches and Purposes)
  6. Mergers (Or Small Firm Acquisitions)
  7. Branching

This week I will outline the pros and cons for number 4 and 5 – Lateral Partners (Equity or Non-Equity) and Of Counsel.

Lateral Partners (Equity or Non-Equity

PROS

  1. Maybe a quicker way to increase profitability and cash flow.
  2. Allows the firm to acquire talent that it may not have time to grow or develop.
  3. Allows the firm to expand into new areas if the candidate has said experience and brings a book of business with him or her.

CONS

  1. Desired compensation may not fit within the firm's existing compensation structure.
  2. Clients may not come or materialize.
  3. May be issues with cultural fit.
  4. Costs may not be justified.

Of Counsel – Various Approaches and Purposes

  1. Allows the firm to acquire partner level talent, business, etc. without offering partnership.
  2. Provides the firm with a way to acquire a practice of someone wanting to retire.
  3. Provides the firm with a way to pilot test new lateral partner candidates and evaluate in a first-phase approach.
  4. Provides the firm with a way to partner with other firms.
  5. Provides a way for the firm to enter more new market areas.

Other models to be discussed in upcoming posts.

Click here for our article on hiring associate attorneys

Click here for our law firm management articles

John W. Olmstead, MBA, Ph.D, CMC

 

    

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