Best Practice Tips: Law Firm Succession and Transition—All Three Partners Retiring at the Same Time
Asked and Answered
By John W. Olmstead, MBA, Ph.D, CMC
Q. Our firm is a personal injury, plaintiff's litigation firm in Denver, Colorado. I am one of three partners in the firm. We have one associate who has been with us for 12 years and three recent law grad associates with less than three years’ experience. The three partners started the practice together over 30 years ago and we are all in our early 60s. Our lease expires in three years and we need to think about the future of the firm. All three of us are not ready to retire but none of us want to sign another lease. When we do retire, we would want to retire at the same time. Do you have any suggestions?
A. I believe your first step would be to agree on your timeline for the group’s phase-down and eventual exit from the practice. It sounds like three years may not be the date that you want to exit from the practice, but it may be the date that you sell your partnership interests or begin the transition of your interests. Many firms that have other attorneys working in the firm prefer an internal succession strategy as opposed to an external strategy—selling or merging the practice. An internal strategy will depend upon:
- Whether your senior associate has the legal, business, and marketing skills to successfully carry on the firm.
- Whether your senior associate has the desire or any interest in owning a firm and taking over your firm.
- Whether your senior associate has the capital to buy out all three partners' interest or even the willingness to buy out your partners' interest paid out of future collected revenues.
I believe your second step is to reach a conclusion as to the above three questions. You may have to have some candid discussions with you associate to determine his or her interest level and his or her readiness to take over the practice. If you determine that your senior associate is your succession strategy, you need to decide whether you are willing to start selling the associate shares sooner than later and admit the senior associate as a minority interest partner. As part of this partnership admission, you would also execute an agreement for the purchase of additional shares over the next few years and upon your actual retirements. This way you get your associate committed and begin executing a transition plan focusing on additional legal and business skill development as well transitioning client and referral source relationships and firm management responsibilities.
If you determine that your senior associate is not your succession plan, you will have to consider other options, such as bringing in a seasoned lateral attorney that has the needed skills and desire to take over ownership of the firm, selling the firm to another firm, or merging the practice.
John W. Olmstead, MBA, Ph.D, CMC, (www.olmsteadassoc.com) is a past chair and member of the ISBA Standing Committee on Law Office Management and Economics and author of The Lawyers Guide to Succession Planning published by the ABA. For more information on law office management please direct questions to the ISBA listserver, which John and other committee members review, or view archived copies of The Bottom Line Newsletters. Contact John at firstname.lastname@example.org.