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Firm Dissolution

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Ending the entity must be done with care.

Executive Summary

Law firms break up all the time and for lots of reasons – some acrimonious, some amicable. Naturally, you don’t anticipate a divorce when your firm is launched. But you can improve the odds of a successful union by (a) careful planning, (b) common core principles, and (c) shared obligations. And if things go bad, there are ways to protect yourself and your clients.

Parting Ways Safely

If you’ve ever helped a client form a partnership, you’ve probably advised them to consider what will happen if the entity is dissolved. Take your own advice. Make sure your partnership agreement and corporate documents include provisions for dissolution. All lawyers should understand and agree to the provisions before becoming partners.

A well-drafted partnership agreement will discourage dissolution. Partners know they can’t just walk off with business or run away from liabilities. Most importantly, clients will be protected.

Alta Pro Practice Pointers

  1. Spell out the essentials. Define the obligations and liabilities of partners – individually and collectively – in the event of firm dissolution.
  2. Identify key players. Who is in charge of the wind-down process? Is there a procedure for choosing this person? What is their authority to resolve disputes and enforce the terms of the partnership agreement?
  3. Plan for distribution and ownership of firm assets. These include IT and intellectual property, client data, and intangible assets like firm name, logo, marketing materials and website.
  4. Notify your lawyers and staff. Contact anyone – including retired partners – who may be affected by the dissolution. Help employees and associates transition as smoothly as possible.
  5. Notify your clients. Have a plan for notifying clients of changes in firm makeup or management. Create letters for this purpose. Explain what the changes will mean to the firm generally and the client specifically. Advise clients of their options.
  6. Notify your insurance agent(s). Explain the changes in firm status, management or membership. This starts with your professional liability policy and includes other relevant coverages such as group health, life, fire and casualty, key man and workers’ compensation.
  7. Create a process for the departure of partners. Don’t allow disputes and personality issues to impact client relationships or cases.
  8. Comply with your ethical obligations. Keep client information safe. Don’t let cases fall through the cracks or get farmed out to unqualified counsel. Lawyers can’t divvy up clients like office furniture. Don’t punish clients for the choices they make.
  9. Go the extra mile to protect your clients. This might mean incurring unexpected costs. Do it. If personal issues like substance abuse or financial problems contributed to the firm breakup, make sure clients aren’t harmed by the fallout. Treat clients with the care, courtesy and respect they deserve – not like children in a nasty divorce.

The Bottom Line: Reduce your malpractice risk in a firm dissolution through advance planning and clear communication with everyone who is affected – most especially your clients.

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