Law Firm Partnership Agreement
Definition of a Law Firm Partnership Agreement
A law firm partnership agreement is an agreement made between two or more persons. It entails joining of partners to establish and operate a law firm. Further, a law firm partnership agreement is significant for various reasons. These include outlining the rights, roles and responsibilities of every partner in the partnership. Partnership agreements are also key to the success of a partnership. Moreover, they aid in the avoidance of likely disputes and offer resolution plans and conflict protection.
A law firm partnership agreement also comprises of two or more partners that manage the profits and general operations of the firm. Hence the need of a comprehensive business structure that has several advantages. These include:
- Ease of establishment.
- Straightforward and simple business structure.
- Flexibility as to the number of creditor’s hence adequate capital.
- Combination of knowledge, contacts and skills among people.
- Cost-effective since each partner has their area of specialization.
- Provision of a team environment and innovative brainstorming.
- Less paperwork.
Significance of a Law Firm Partnership Agreement
Whether a law firm comprises two advocates or more, a law firm partnership agreement is mandatory. The law firm partnership agreement deals with the main life events of a law firm partnership. These events include the establishment, admission, departures and retirement of partners and departures. It also tackles dissolution of the partnership, retirement of partners, termination of the partnership and possible mergers and acquisitions.
Written Law Firm Partnership Agreements
The relationship among partners and the law firms is regulated by the partnership agreement. The partnership agreement can either be oral or written. There are however situations that the agreement does not regulate. The first is a situation not provided for under the act hence the partners resort to the governing law within the firm’s jurisdiction. The second instance is where particular duties and rights cannot be waived in the law firm partnership agreement.
Courts have also held severally on the importance of written partnership agreements as opposed to oral ones. Written agreements serve as a point of reference since they are certain and comprehensively set put the roles, responsibilities and duties of all the partners. Further, a well drafted partnership agreement is customized to the practice of a firm is a solid foundation. Hence the cornerstone of efficient and effective management of the firm’s culture, firm, and its economies.
Types of Partnerships
A partnership agreement could take various forms. These include a general partnership, limited partnership of a limited liability partnership.
Just like a basic partnership agreement, a law firm partnership agreement concisely describes the expectations of each partner. These include their responsibilities and roles to the partnership. The document is of essences as it offers mechanisms of resolving future problems. It also makes provision of alternative dispute resolution and prevents disputes from escalating to litigation.
Key Components of a Law Firm Partnership Agreement
A basic law firm partnership agreement should contain various elements. They include:
- Partners
This section of a law firm partnership agreement ought to outline the procedure of adding new partners. It should also include the precise experience, qualifications and buy-in amounts, where applicable.
- The Duration of the Partnership
It is significant, though not mandatory, to clarify the duration of the partnership. By doing so, a partnership agreement aids in elimination of possible future issues. Thus, the contract can be extended or renewed with ease later on. However, the enactment of an act can abruptly annul a partnership. The death of one of the partners could also annul it. Nonetheless, the majority of partnership agreements contain the severability clause or force majeure clause. Such hinder the abrupt termination of a law firm.
- The Law Firm’s Capital
A law firm partnership agreement should not lack a section that deals with finances and accounts. Hence the partner investments and financial contributions that are needed to run the law firm. Such include the startup capital, emergency funds and the growth of the partnership. The law firm partnership agreement should clearly state the capital the firm ought to maintain.
Other Essential Provisions of a Law Firm Partnership Agreement
- The Partners’ Voting Rights
A typical partnership agreement is keen to highlight the firm’s voting system. There exist two main voting systems which are the weighted voting and per capita voting. The weighted voting system is complex, requires well-defined rules and voting rights are dependent on a partner’s experience. On the other hand, the per-capita voting system is more common. It entails having one vote for each partner. It also comprises the rule that the majority wins.
- Sharing of Profits
A good law firm partnership agreement should also include the mode of sharing of profits among the partners. The preceding will aid in preventing likely disputes among the partners.
- Retirement
This section of a partnership agreement defines the retirement options available. It also outlines the age and manner of raising funds of the retirees. A certain age is set for compulsory retirement but there are numerous exceptions. It is greatly recommended that all law firm partnership agreements should include the compulsory retirement clause.
- Death and Disability
The preceding section of a partnership agreement ought to be informative. It should also outline what is in the best interest of the firm. However, it should strike a balance in the determination of compensation rights. There should also be a determination of the permanent and temporary disability distinction, some compensation rights, ad a cut-off point. The majority of the partnership agreements try to circumvent the section. Hence, they offer full or partial compensation for a while.
- Withdrawal of Partners
A law firm partnership agreement should include the procedure and policies to be followed. The preceding applies to when a partner desires to opt out of the law firm. partnership agreements offer financial disincentives to avoid the loss of capital. This is especially when a partner decides to leave the firm. Some of the benefits of financial disincentives include motivating employees to stay longer, decreasing financial risks and safeguarding clients.
- Expulsion of Partners
A partnership agreement should also include a section that is open to everyone. Hence people are allowed to ask endless questions in relation to termination. The aspect of expulsion safeguards the law firm during crisis. This section of the law firm partnership agreement entails how the law firm handles problematic partners. Such include those that are unproductive and have been disbarred.
- Protection from Dissolution
This section of a law firm agreement partnership has various benefits:
- Safeguards the rights of both the partners and the clients.
- Grants advance notice to the partners that choose to leave the partnership.
- Includes problematic issues like death.
- Refocuses the attention on the firm as opposed to personal careers.
- Lists out the rights, roles and responsibilities of the partners.
- Informs clients earlier of an advance dissolution.
- Makes the transition easy for clients by aiding them establish good legal representation.
- Determines the allocation of finds.
- Determines distribution of new clients to individuals.
Fair Dealing and Good Faith in Law Firm Partnership Agreements
Partners in a law firm ought to undertake to have undivided loyalty among themselves. The obligation of fair dealing and good faith should thus be included in the law firm partnership agreement. The obligation mandates the partners to refrain from doing anything that could destroy or injure the rights of another partner. Such breach occurs when either of the partners engages in conduct that deprives another of their benefits.
A partner in a partnership agreement is thus obliged to discharge their duties. They are also mandated to exercise their rights in consistence with the duty of fair dealing and good faith. The preceding obligations runs in every matter related to the conduct and winding up of the partnership. Further, the requirement of fair dealing and good faith is not a fiduciary one. It is also not a separate duty. Rather, it is part and parcel of the law firm partnership agreement.
Good faith in a partnership agreement denotes honesty in the transaction and conduct in issue. Thus, faithfulness regarding operation of the law firm demand performance of the contract in good faith. The aspect of good faith also excludes the conduct that violates community standards like fairness, reasonableness and decency.
Moreover, if a partnership agreement fails to make provision on the compensation of a partner leaving the firm, good faith and fair dealing are implied. The preceding aspects require that the departing partner should not be undercompensated. Even if the partnership agreement grants the firm liberty of setting compensation, it should act reasonably. In the event the law firm fails to do so, it may be held liable for breaching the implied covenant of fair dealing and good faith.
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