Being a partner is great, but hold on a minute …
In nine years of practice, I feel blessed to have experienced one of the greatest moments of any attorney’s career: I was named a shareholder partner at an established Chicago law firm.
Like many other young lawyers, having that title was something I have long dreamed of. In fact, when other little girls were playing “bride” with their Barbie, mine was blowing off plans with Ken to work on a big lawsuit. When that day finally came, in 2011, I let excitement take over and didn’t realize the reality of what I was getting myself into.
It took some harsh realities to learn that before saying yes to partnership, you should first take measures to investigate your investment in the business and to protect yourself throughout the course of the partnership’s existence — and in the event that you move on, which happened in my case when I decided to set up my own law office in February 2014.
Here’s my advice to any attorney thinking of making the jump from associate to partner.
Have a written partnership contract
Who would operate a business without a written contract defining the rights and obligations of the shareholders?
It may sound crazy, but it is surprising to learn that many attorneys are operating their businesses on an honor system. Although in the short-term this might be the easy way, long-term written documentation of the partnership agreement will avoid confusion and, in the worst case scenario, litigation.
In the event that no agreement is signed, there might be support depending on where you’re based (in Chicago, the Illinois Partnership Act normally controls), but relying on this as a default is not the best idea.
Review the firm’s financial past, present and future
In the excitement of a promotion, who is thinking about finances? Or maybe it feels awkward to ask a superior for financial information. Usually an attorney assumes that there is money to continue operation and that the ship is under the control of a good captain. Do. Not. Do. This.
Ask to see the last five years’ worth of financial statements, including firm tax returns, profit and loss reports, the year-to-date financial statement, a business plan and any other documents your accountant recommends.
Then take these documents to an independent accountant so you can be educated as to what the numbers actually mean.
If your potential future partner refuses or says that any of these documents do not exist (including a business plan), don’t just say no to being a partner, start looking around for a new job. Financial transparency is key.
Have (another) attorney review said document
Have you ever heard the expression “an attorney who represents himself has a fool for a client”? This could not be truer in the context of putting your financial future in your own hands. You are emotionally invested in these decisions and likely have no experience in knowing if you neglected to address a necessary topic or potentially wrote in a provision that nullifies all of the documents.
Having an attorney provide you with advice about the creation of the document or documents will be much less costly than the lawsuit attempting to sort out ambiguous or neglected terms.
If your partner tries to discourage you from seeking outside legal counsel, this is a huge red flag.
Ask questions about the future of the firm
Make sure you find out what your partner’s future vision is for the firm.
How does he or she see succession occurring? Does your partner have an interest in long-term financial sustainability?
How does he or she address saving? Spending? Distributions?
Address the bad times
It is so much fun to address the good times that will be ahead, such as the distribution of assets from all of the money you will no doubt make as a partner.
However, you should address from the beginning your role in the allocation of these funds. Your own accountant is essential, and he or she should be present during quarterly financial reviews and, at the bare minimum, end of year. If your partner balks at this proposition, think about why.
Address your possible future departure, termination, death or injury. It is hard to imagine that you will ever part from your firm (especially if your name is on the door), but you have to include this scenario in your agreement to protect everyone, including your clients and business.
Provide for the allocation of funds, fulfillment of financial obligations and resolution of grievances.
Although none of these provisions may never be necessary, if they do, you will never be sorry that they were addressed outside of a costly legal battle.
This blog was originally posted on ChicagoLawyerMagazine.com.
