Law Firm Partnership Agreement: Everything You Need to Know

A Law Firm Partnership Agreement is an agreement between two or more individuals who join as partners to develop and maintain a business. The agreement plays a significant role in forming a business by providing a thorough description of each partners rights and responsibilities. Law Firm Partnership Agreements are vital to the success of a partnership, avoiding potential disagreements, and providing conflict protection and resolution strategies.

Partnership Agreements

A partnership consists of two or more individuals who share management control and profits. A partnership business structure provides several advantages:

• Easy to establish.
• Most straightforward and easiest business structure.
• More than one person is able to contribute financially, which increases capital.
• Combines the skills, knowledge, and contacts between two or more people.
• Cost-effective.
  • Each partner specializes in certain areas of the company.

  Three Types of Partnerships:

  1. General Partnership.
  2. Limited Partnership.
  3. Limited Liability Partnership.

  Similar to a regular partnership agreement, a Law Firm Partnership Agreement clearly describes what is expected of each partner, including their roles and responsibilities to the company. This document works to resolve future crises and provides a conflict resolution system, as well as a proactive approach to prevent these situations from happening altogether.

  Ten Key Components in a Partnership Agreement

  The partnership agreement covers the following main points:

  1. Partners:
     • This section should clearly outline the process for adding new partners, including specific qualifications, experience, and buy-in amount, if applicable.
  2. Duration of Partnership:
     • It is important, but not required, to specify the desired duration of the partnership in order to eliminate possible future problems. The contract can easily be renewed or extended at a later date.
     • Uniform Partnership Act.
       • Can abruptly end a partnership without warning.
       • The death of a partner would terminate the partnership.
         • Most agreements have a clause to prevent this from occurring.
  3. Capital.
     • Financial contributions and partner investments are necessary to keep the company operating. Startup investments, funds to cover emergencies, and growth of the company are clearly defined in this section. The agreement should clearly state the capital that the partnership should maintain.
  4. Voting Rights.
     • Weighted Voting Vs. Per Capita Voting.
       • Weighted Voting.
         1. Very complex system.
         2. Requires well-defined rules.
         3. The more experience a partner has, the more their vote counts.
         • Most common.
         • One vote for each partner.
         • Majority wins.
         • Profit allocation should be clearly defined and is typically decided by voting.
         • This section defines retirement options, age, and how funds are issued to retirees. An age is set for mandatory retirement, however, there are exceptions to this rule. It is highly recommended to include a mandatory retirement clause in the agreement.
         • This section of the agreement should be informative and do what is in the best interest of the firm, but also be compassionate in determining compensation rights.
         • Determine temporary and permanent disability distinction, compensation rights, and a cut-off point. Most businesses take a simple approach to this matter and provide either full or partial compensation for a certain amount of time.
         • Include sections that define the process and compensation amount for the estate of the deceased. Both the duration of payment and payment amount are clearly stated.
         • A partnership agreement should include policies and procedures for when a partner decides to leave the company.
         • It is common for a company to offer financial disincentives in order to avoid loss of capital if a partner withdraws on short notice. Financial disincentive benefits:
           • Motivates employees to stay with the firm.
           • Decreases financial risk.
           • Protects clients.
           • A partnership agreement also must include a section to answer questions regarding termination. Expulsion protects a firm in a time of crisis. This section thoroughly covers how the firm will handle an attorney becoming a liability, unproductive, and disbarment.
           • If an attorney is disbarred.
           • Protects the rights of the partners and their clients.
           • Gives advance notice that the partners are going separate ways.
           • Most complicated part of the deed and should be included in the agreement.
           • As detailed as it can be.
           • Refocuses attention on the firm rather than individual careers.
           • Responsibilities and duties of the partners should be clearly defined.
           • A dissolution provision:
             • Informs clients in advance of the dissolution.
             • Makes the transition easy for clients by helping them find new legal representation.
             • Determines how funds are allocated.
             • Determines how clients are given to individual lawyers.

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