TABLE OF CONTENTS Introduction and Model Agreement ‘ = Intro-1 CHAPTER 1 An Overview of Law Firm Partnerships § 1.01 Partnership Defined 12 § 1.02 Characteristics of a Partnership 1s {1} Controlling and Operating a Business 17 [2] Compensation as Percentage of Firm Profit a 18 (3) Employment Security : 18 § 1.03 Consequences of Partnership 19 [1] Partners’ Fiduciary Obligations to Each Other : a 19 [2] The Standard of Good Faith and Fait Dealing 1-19 [3] Good Faith and Fait Dealing in the Context of Law Firm Partnerships § 1.04 Informing Clients of a Change in Firm ... § 1.05. Written Law Firm Partnership Agreements, [1] Partner's Compensation ...... [2] Allocation and Accrual of Equity [3] Continuation Provisions al.)vi LAW FIRM PARTNERSHIP AGREEMENTS (4] Partnership Goodwill {5} Clients of Partners Leaving the Firm [6] Firm Organization and Administration § 1.06 Partnerships at Will. § 1.07 Right to an Accounting .. [1] Basic Rights... [2]. Bringing an Action for an Accounting [a] The Complaint [b] The Answer fel Discovery {d] The Court Order . fe] Form of Accounting [f]_ Statutes of Limitations $1.08 Partnership by Estoppel $1.09 Partnership Tiers and Differential Liabil 1] Two-Tier Partnerships [2] Vicarious Liability [3] Joint and Several Liabil § 1.10. Comparing the Uniform Partnership Act with the Revised Uniform Partnership Act [1] History of the UPA and the RUPA ... [2] Important Differences Between the UPA and the RUPA, [a] Nonwaivable Rules [lb] Partnership as an “Entity” [cl The RUPA’s Filing Provisions . [a] Fiduciary Duty: Abandoning the “Punetilio of Honor” CHAPTER 2 Choice of Entity for the Firm § 2.01 Factors in Choosing the Organizational Entity [1] Tax Considerations [a] General Partnerships [b] Professional Corporations [cl Limited Liability Partnerships and Limited Liability Companies 134 134.1 1343 1-345 1-347 1-347 1349 1-34.10 1-362 1-367 1-36.10 1-36.13 137 1-39 1-402 1-40.2 14 143 1-46 1-46 147 147 1-48. 1-50 1-50§ 2.02 § 2.03 TABLE OF CONTENTS 2] Vicarious Liabitity Considerations [3] Other Considerations The Law Firm General Partnership | U1] Characteristics [2] Essential Elements of « General Partnership for the Practice of Law (3] Capital Contributions [4] Agency Relationship; Powers of Partners : [5] Fiduciary Relationship .... [6] Ethical Responsibilities . [7] Decision-Making [8] Income Sharing . (9) Liability of Partners cee (10] Professional Liability Insurance... (11) Other Insurance [12] Recourse and Non-Recourse Obligations [13] Liability for Leasehold Obligations [14] Incoming, Outgoing and Retiring Partners {a] Financial Due Diligence by Potential Partners... [b] Third Party Liabilities and Withdrawing Partners .. (e] The Nature of the Vicarious Liability Obligation as It Applies to Withdrawing Partners [a] Return of Capital to Withdrawing Partners (15] Dissolution and Winding Up [a] Dissolution by Act of a Partner in Violation of Written Partnership Agreement . [b] Dissolution by Court Decree {c]_ Consequences of Dissolution [4] Winding Up Professional Corporations [1]. Practicing Law as a Corporation [2] Characteristics [3] Taxation... 26 2-10 2-101 2410.1 2M 2-12 212 2.13 2141 2.30 2.33 2.38 2:39 2:39 240 2.42 2-45 2-45 2-45 2.46 kel. 23)§ 2.04 § 2.05 LAW FIRM PARTNERSHIP AGREEMENTS [4] Formation and Operation [5] Shareholders’ Agreement [6] Purchase of Shares . 17] Fidueiary Duties [8] Ethical Responsibilities [9] Voting [a] Shareholder Voting {b]_ Director Voting [10] Income Sharing : [11] Vicarious Liability ........... [a] Scope of Liability Protection [b] Piercing the Corporate Veil [cl _Respondeat Superior [12] Employees [a] Employment Agreements [b] Repurchase of Shares and Severance . [13] Dissolution Limited Liability Partnerships [1] Generally [2] Characteristies [3] Tax Status . . [4] Vicarious Liability . [5] Formation [6] Operation [7] Conversion [8] Contribution and Indemnification ‘Agreements and Their Impact on Vicarious Liabilities {9] State LLP Laws Limited Liability Companies [1] Generally ......ccceeeeee [2] Formation and Operation [3] Control [4] Operating Agreement ... [5] Voting : {6] Vicarious Liability [7] Dissolution [8] LLC Mergers . {9] Taxation [10] Converting to an LLC‘TABLE OF CONTENTS § 2.06 Intemational Law Firm Structures [1] The Swiss Verein Structure [2] Australia, the United Kingdom and the ABA Rules of Professional Conduct [3] Public Investment and the Conflict of Interest Between Clients and Investors CHAPTER 3 Setting up the Firm § 3.01 Preliminary Matters {1} The Firm Name . (2] State Law Which Will Govem Firm Disputes [3] Term of the Partnership and Withdrawal of a Partner [4] Location {a} Principal Office [b] Multi-State Firms [5] Choice of Fiscal Year [6] Statement of Purpose (71 Financing the Firm § 3.02 Partners and Partner Classification Ul] Equity Partners [2] Non-Equity Partners {3] Transition Partners and Retired Partners... [4] Former Partners [al Defined 6b0ne [b] Use of the Former Partners Name . {c} Cooperation by Former Partners fd] Covenants by Former Partner Not to Compete sees [5] Other Partner Designations . [a] Jurisdictional and Non-Jurisdictional Partners .. [b] Liable Partners [el Deceased Partner [d] Disabled Partner § 3.03 Associates . 3.29 3.29 3.30 30 3.31 (eal. 23)§ 304 § 3.05 § 3.06 $401 $402 § 403 LAW FIRM PARTNERSHIP AGREEMENTS. Relationship of Partners Toward Each Other {1} Fiduciary Duties of Partners [2] Limitations on Outside Interests [3] Professional Responsibility and Partnership Expulsion [4]. Keeping Partnership Information Confidential [5] Client Retainer Agreements and Their Application to New Clients and New Matters [6] Client Files , (7), Partner Restrictions on Incurring Firm Obligations [8] Bank Accounts [9] Opinion Letters {10} Prohibition on the Transfer of a Partner's Interest in the Firm Alternatives to Actions at Law . [1] Mediation ... [2] Arbitration [al Arbitration Criteria [b] Punitive Damages and Attorneys’ Fees [el Which Law Applies... Amending the Partnership Agreement CHAPTER 4 Management Structure Defining Management Responsibility [1] Determining Management Structure .. [2] The Committee System in General Partnership Voting [1] One Person-One Vote : [2] Majority and Super-Majority Rule [3] Weighted Voting [4] Proxy Votin The Executive Committee : {1} Establishment and Membership (21 Authority . 3.39 3.40 3-40 3.43 3-48 42§ 4.04 § 4.05, § 4.06 $407 § 408 § 409 §501 § 502 § 5.03 TABLE OF CONTENTS [3] Partnership Voting on Executive Committee Actions Shoes ‘The Management Committee - ‘The Practice Development Committee The Practice Management Committee Other Committees . [1] Budget Committee . [2] Ethics Committee [3] Bias Complaint Committee . Committee Chaitpersons [1] The Managing Partner [2] The Administrative Partner [3] Director of Finance : Committee and Partnership Meetings [1] Committee Meetings, Membership and Reports .. [2], Partnership Meetings [al Regular Meetings . {b] Special Meetings [ec] Minutes and Agendas CHAPTER 5 Partnership Income and Assets ‘What Constitutes Partnership Income Partnership Assets and Liabilities [1] “Partnership Net Assets” Defined [2] Accounts Receivable [3] Work-in-Process [4] Investment Opportunities [5] Leasehold Adjustments Distribution of Distributable Partnership Income... UJ “Net Income” and Defined [2] Distribution of Net Income [3] Distributions to Former Partners istributable Income” [a] Indemnifying Former Partners and the Partnership Termination Percentage . 5-4 54 55 5-6 57 59xii LAW FIRM PARTNERSHIP AGREEMENTS [b] Determining the Payout Amount S17 [el Third Party Calculation ...... 5-18 [a] Timing the Payout 5-19 fe] Payment Limitations, Conditions and Defertals .......s00eeeeee 5-19 [f] Uncollected Fees Generated by a Former Partner Prior to Departure [4] Expense Allowances [5] Partners’ Capital Accounts [a] Defining Capital and Providing for the Firm's Capital Account [b] Capital Accounts [el Withdrawal of Capital [6] Pension Plans [7] “Allocable Income” Defined [8] Tax Allocations and Other Tax Matters [9] Tax Disputes Involving Non-Equity Partners... 5-262 [a] Statement of Inconsistent Position: IRS Form 8082 ss 5-263 {b] The Duty of Consistency, aka Quasi-Estoppel § 5.04 Types of Partner Compensation Systems [i] The Compensation Committee System [2] The Formula System .... [3] The “Equal Partners” System [4] The Proprietary System [5] The Seniority/Lockstep System [6] The “Eat What You Kill” System CHAPTER 6 Changes in Relationship Among Partners $6.01 In General ree . 6-241 [1] The Effect on a Partnership of a Withdrawal . [2] Continuation of the Partner [3] Procedures to Follow When There Is a Change of Relationships .......... 6-4‘TABLE OF CONTENTS ail [4] New Office Space and the Confidentiality Concerns of Voluntarily Withdrawing Partners : 68 § 6.02 Procedures for Admitting New Partners . 6-10 [1] Promotions of Associates to Partner ... 6-10 [2} Laterals 6-101 fa] Determining the Suitability of a Lateral Applicant cee 610.1 [b] Conflicts of Interest... 6-129 fi] Direct Conflicts 6-129 [ii] Imputed Conflicts ... 6-12.01 [iii] Conflicts Concerning Former Government Officials, Judges, Arbitrators or Mediators 6-12.12 [3] Equity vs, Non-Equity Status 6-12.12 [4] Execution of Partnership Agreement 6-13 $6.03 Withdrawal and Termination .. 6-15 (1) Voluntary Withdrawal and the Enforceability of a Notice Requirement 6-15 [a] Withdrawal and Separation ‘Agreements 6-17 li) Form: Confidential Settlement ‘Agreement i 6-19 lil] Form: Settlement Agreement Resolving Claims of a Small General Practice Firm 6-205 ii] Form: Separation Agreement and Specific Release 6-20.10 {b] Developing a Policy Anticipating the Voluntary Withdrawal of Partners 6-20.20 [el The Impact of Withdrawal on Bonuses ....... 6-20.25 [2] Involuntary Termination sees 6-20.26 [al A Cause vs. No-Cause Provision ..... 6-20.29 [b] Attendance of the Affected Partner at the Meeting on Removal 6-20.32 [cl] Percentage of Vote Required to Remove . seen 6-21 [d] Application of the Federal Anti-Discrimination Statutes... 621 (e123)xiv LAW FIRM PARTNERSHIP AGREEMENTS: [3] Solicitation of Clients and Tortious Interference with Firm Clients [a] Client Solicitation ...... {b] Tortious Interference . [4] Solicitation of Partners and Associates [5] Access to Client Files by a Withdrawing, Partner [6] Withdrawing Pariner's Access to Partnership Confidential Information [7] Withdrawing Partner’s Interest in Unfinished Assignments [8] Confidential Exit Agreement on Involuntary Withdrawal $6.04 Retirement {1] Formulating Retirement Policy [2] Mandatory Retirement : [a] The Balancing Test for Determining | Employee Status {i Whether the Organization Can Hire or Fire the Individual or Set the Rules and Regulations of the Individual’s Work [ii] Whether and, If So, to What Extent the Organization Supervises the Individual’s Work . [ii] Whether the Individual Reports to Someone Higher in the Organization [iv] Whether and, If So, to What Extent the Individual Is Able to Influence the Organization . Iv] Whether the Parties Intended that the Individual Be an Employee, as Expressed in Written Agreements, or Contracts [vi] Whether the Individual Shares in the Profits, Losses, and Liabilities of the Organization [3] Gradual Retirement. . fa] Mentoring . 6-28 6-28 6-38 6-40.1 6-403 6-405 6-407 6-40.9 6-40.19 6-40.19 6-41 6-44 6-45 6-46 6-46 6-46 647 6-48 6-48§ 6.05 § 6.06 § 607 § 6.08 § 609 $701 § 7.02 § 7.03 § 7.04 § 7.05 TABLE OF CONTENTS xv [b] Sequenced Retirement ........06... 6-482 [4] Covenant Not to Compete on Retirement . [5] Ongoing Private Law Practice [6] Responsibility for Partnership Debts [7] Funded and Unfunded Plans [8] Small Firms and Sole Practitioners Death Disability - Incompetence ... Leaves of Absence [1] Sabbaticals . [2] Vacations ce ‘Temporary Withdrawal . CHAPTER 7 Dissolution Dissolution Defined Termination Defined The Role of the Partnership Agreement Causes of Dissolution .... : (1) Withdrawal of a Partner : [2]. Dissolution by Expulsion of a Partner [3] Bad Faith Dissolution ........... [4] Bankruptcy of a Partner [5] Death of a Partner .. [6] Incapacity Duty to Wind Up Affairs of the Partnership [1] Obligations of Partners After Dissolution to Partnership [2] Partner's Authority to Bind Partnership [3] Duty to Finish Unfinished Business [4] Sharing of Profits and Losses Upon Dissolution . (51 Contingency Fees of a Partnership in Dissolution feccttteteeeeeeee Te {6] Judicial Dissolution : ne’ [71 Appointment of a Receiver cece 79 (Rel. 23)xvi LAW FIRM PARTNERSHIP AGREEMENTS § 7.06 Valuing a Law Firm’s Goodwill on Dissolution .....00.ccsceeeees {1] Agreeing that Goodwill Has No Value {2} Client’s Choice of Counsel and Goodwill... An 7508 [3] Goodwill as an Independent Asset Capable of Valuation . se. 7509 [4] Valuing Goodwill : 7-509 [a] Discounted Future Earnings Method 7-50.10 [b] Excess Earnings Method ...... 7-50.11 § 7.07 The Valuation Expert 753 § 7.08 Agreements on Dissolution of the Law Firm .. 758 (1] Agreement Between and Among Partners of a Dissolving Firm veces 7-58 [2] Agreements with Third Parties Be 7s [a] Agreements with Landionds ......... VIS [b] Agreements with Financial Institutions, 7 CHAPTER 8 Buying, Selling or Merging Law Practices $8.01 Sale of a Law Practice ... : 82 [1] The ABA Model 82.1 [2] The New York Example ........00000005 84 [al Permissible Sale saeo4a6955 B4 Ib] What May Be Sold... 000.0 85 fe] Confidentiality Sedecieod 8-6 [d] Written Notice to Clients 86 [3] Sample Sale of Law Practice Agreement [4] The Sales Price § 8.02 Merging a Law Practice {1} Client Concerns . [1A] Due Diligence and Confidentiality [2] Sample Merger Agreement of Two Law Firms . i 88.19§ 8.03 § 8.04 § 8.05 § 9.01 § 9.02 [3] De Facto Mergers [a] Continuity Of Ownership . . Ib] Cessation of Ordinary Business and Dissolution of the Predecessor . . [cl Assumption of Liabilities by the Successor... [4] Continuity of Management, Personnel, Physical Location, Assets and General Business Operation . ‘Tax Aspects of a Law Firm Merger U1] Definition of a Partnership Merger [2]. The Terminating and the Continuing Partnership ...... {3] Tax Construct of a Merger [4] Tax Consequences of a Merger [a] Distribution of Cash [b] Liability Shifts [c]_ “Anti-Mixing Bow!” Rules [d] _“Disguised Sale” Rules {5} Tax Return Requirements . [6] Consequences of Merger-Tax Attributes [7] Professional Corporations Standstill Agreements Buying, Selling and Merger Discussion Check List : CHAPTER 9 Law Firm Bankruptcies Partnership Bankruptcies . [1] Chapter 7 vs. Chapter 11 [2] Venue of the Bankruptey Case [3] Getting Started: Practical Considerations Eligibility for Relief Under Title 11. [1] Generally . {2}. Partnerships in Dissolution: Eligibility to Be a Debtor . [3] Authority to File Voluntary Petitions . [al Voluntary Petition 8-42 8.42.2 842.3 842.3 8424 8-43 8-43 8-43 844 8.45 8-45 8-45 8-46 8-46 8-47 8.47 8-47 8.49 8-54 9-2 93 9-4 94 97 9-7 9-8 9-10 9-122 Rel. 23)will § 9.03 $9.04 LAW FIRM PARTNERSHIP AGREEMENTS [b] Exhibit A to the Petition .. [c] Exhibit C to the Petition [d] Petition Declaration: [el List of Top Twenty Creditors [f] Summary of Schedules Ig] Schedule A: Real Property [h] Schedule B: Personal Property [i] Schedule C: Property Claimed as Exempt [jl Schedule D: Creditors Holding Secured Claims [k] Schedule E: Creditors Holding Unsecured Priority Claims ‘hedule F: Creditors Holding Unsecured Nonpriority Claims Im] Schedule G: Exceutory Contracts and Unexpired Leases [n] Schedule H: Codebtors ..... fo] Declaration Conceming Debtor's Schedules .... Ip} Statement of Financial Affairs Iq] Notice of Meeting of Creditors ..... [4] Authority to File Involuntary Petition Effect of Filing: The Partnership Agreement and Status of the Partnership (11 Introduetion ..... [2] The Partnership Agreement as an Executory Contract {3} Status of the Partnership and Interests in a the Partnership Property of the Estate [1] Generally [2] Contribution Obligations of Partners [3] Recoveries from Avoiding Powers [4] Section 723: Rights of Partnership Trustee Against General Partners. [al Applicability of Section 723 [b] Section 723(a): Trustee's Claim .gainst the General Partners [cl Section 723(b)-(c): Proceeding Against Non-Debtor and Debtor General Partners. 9-125 9-126 9-126 9-127 9412.8 9-12.9 9-12.10 9-12.13 9-15 9.17 9.17 9.17 9-18 9-20 9-20.1 9-21 9-24‘TABLE OF CONTENTS xix [d] Federal Rule of Bankruptcy Procedure 1007 {e] Repeal of the “Jingle Rule : [5] Property of a General Partner's Estate ..... 9-26 §9.05 The Automatic Stay 9.28 § 9.06 Claims and Distributions : fo-30) [1] Section 723(c) Revisited ...... - 930 [2], Section 508: Effet of Distribution Other Than Under Title 11 [3] Partners vs. Creditors [4] General Partners vs. Limited Partners [5] Current vs. Former Partners [a] Distributions [b] Chapter 11 Plan of Liquidation vs. State Law Plan of Dissolution ..... 9-34 [cl Classification of Claims .. 9-35 [6] Landlord Claims . 9:35 [7]. Plan Provisions Providing for Non-Debtor Partner Releases and Injunctions 9.37 $9.07 Fraudulent Conveyances and Unfinished Business cee sO Table of Cases TC: Index i eel.)