Selling the practice is one of the possible routes to law firm succession. For a law office administrator helping create a succession plan, here are some things to consider:
According to ABA Rule 1.17 Sale of Law Practice, “A lawyer or a law firm may sell or purchase a law practice or an area of law practice, including goodwill, if the following conditions are satisfied:
- The seller ceases to engage in the private practice of law or in the area of practice that has been sold and in which the practice has been conducted;
- The entire practice, or the entire area of practice, is sold to one or more lawyers or law firms;
- The seller gives written notice to each of the seller’s clients;
- The fees charged clients shall not be increased because of the sale.”
You also need to check your state’s rules of professional conduct beforehand and determine whether a sale is permitted in your state, and if so, what are the requirements and restrictions. For example, the Texas Bar Journal states: “One of the most misunderstood “non-rules” in the Texas Disciplinary Rules of Professional Conduct (TDRPC) is the so-called ban on selling a legal practice. There simply is no such ban. There are no rules that prohibit lawyers from selling all or part of their practices.”
If you are a solo or small firm with reoccurring revenue, the sale of your practice may be one of the viable solutions to your succession planning. To be successful, you need to have a plan. Some of the items that you will want to consider are:
- Determine the approximate year that you want to be retired.
- Determine whether or not your sate allows for the sale of a law practice.
- Determine the value of your practice by having a formal valuation completed.
- Determine how much cash flow you will need to exit the firm.
- Determine whether or not you will conduct the search yourself or if you will you use outside assistance. (i.e. business broker who specializes in law firm sales)
In addition to finding a buyer for your law practice, there are other succession and exit strategies that you may want to consider. For example, should you groom associate candidates to become partner or buy the practice; should you look for lateral partner candidates; should you look for merger candidates; or should you look to Of Counsel candidates.
Once you have determined the “who”, you can put together the plan. Careful consideration needs to given to your succession plan.
Brenda A. Barnes is co-author of the book titled, RESPECT – An Insight to Attorney Compensation Plans and is a frequent speaker and consultant on succession planning and attorney compensation plans. She was a presenter for a recent Law Office Manager webinar on Law Firm Compensation & Bonuses: Planning for 2023.