ical component is continued involve- ment with the clients as matters are transitioned to one or more other law- yers. Experience has shown that some continuing involvement of the retiring lawyer is critical to the new firm retain- ing the clients.
• Acquisition by a Large Firm - Solo practitioners and small boutique firms with a highly specialized prac- tice, strong revenues, and a solid cli- ent base can be attractive to some large firms. There have been numer- ous instances where large firms have brought in successful solo practitio- ners and offered a mutually advan- tageous exit strategy for the solo. It must be noted, however, that only a few solos have practices that would produce the revenue necessary to be attractive to a large firm.
• Sale of a Law Practice - Rule 1.17 of the Vermont Rules of Professional Conduct now allows for the sale of a law practice, provided certain con- ditions are met. The rule is of recent origin, so we have limited experience upon which to evaluate the effective- ness of a sale of a law practice, but for most solos an abrupt sale to a third party is fraught with problems, includ-
ing client retention issues. As a result, the better course for a solo is entering a process of bringing in a successor and planning a transition over a com- fortable period.
These approaches involve an analysis of the marketplace and identifying the most appropriate candidates for confidential in- quiry. This process can identify firms that may have an interest, but, like so many law- yers, they are so caught up in day-to-day business that they haven’t found the time to focus on what may be good ideas.
Advantages of Two-Tier Partnerships The advent of two-tier partnerships
came in the 1980s, at a time when many large firms found they had become part- ner heavy and, therefore, needed to slow the growth of partnership ranks. In recent years, more small firms have begun to adopt two-tier partnerships for different reasons. The primary advantage in small firms is that it allows for a gradual transi- tion into partnership with the founder more easily maintaining control of the most criti- cal decisions for a longer period of time. The time also allows for development of the younger partner. Under a two-tiered partnership, the sec- ond tier is made up of non-equity partners
(sometimes called “income partners”) who are salaried, not responsible for firm debt, not required to buy-in, and they have no opportunity to share in the profits, except for the possibility of an employee-like mer- it bonus. While the more significant deci- sions are reserved for the equity partners, the firm can be structured so that the non- equity partners participate in practice man- agement issues and other routine decisions required by the firm. It represents an inter- nal distinction; to the community and cli- ent base, they are “partners.” The non-eq- uity status provides time to groom lawyers and prepare them for the responsibilities of ownership.
Compensation Issues
A proper succession plan requires the successful senior lawyer transitioning cli- ents to younger lawyers three to five years prior to an anticipated retirement. For this to work, the firm’s compensation sys- tem needs to be structured so that the se- nior partner is rewarded, not penalized, for sharing his clients with the next generation of lawyers. While compensation is a major hurdle, there are a number of techniques that have been employed by innovative firms to protect the compensation of senior partners during such a transition.
www.vtbar.org
THE VERMONT BAR JOURNAL • FALL 2011
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Succession Planning
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