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Bar News - April 17, 2009


Do You Want to Sell Out?

By:

Since the financial crisis first hit, more lawyers than ever want to know how to sell their practice, how to value it (a requirement before selling) and then how to transition into life beyond the law. Yes, not everyone is in panic mode – but for some the panic is there. This in fact may be a good time to sell. Those law firms that are wel-run and free of debt will also be positioned to take advantage of many opportunities to be offered by purchasing other practices. And when a law firm is wary or unsure of its current efficiency and effectiveness, a review or audit of the firm from a law practice management consultant may be a good prelude to either a sale or purchase.

When coaching lawyers on selling their practices, I typically start with several questions that, in my opinion, set the stage for all further deliberations:
  • Why do you want to leave your practice?
  • What do you want to do with your life once you leave practice?
  • Do you want to retire, or start a new adventure?
  • Can you achieve the same objective without selling your practice?

In discussing the value of his law practice as a prelude to selling, one client mentioned to me that his financial planner calculated a dollar amount that would assure his standard of living. This number became the purchase price of his practice. I suggested that the two were unrelated, and that the value of the practice may be more or less than the lifestyle number his financial planner suggested.

This caused us to return to the reason he wants to sell his practice and the time frame for achieving a sale. The more urgent is the desire to sell, the lower will be the price; the less urgency, the greater will be the price. Neither number has much to do with what it will take to reach and maintain your desired standard of living. Such a number may impact your decision to complete a transaction, but really has nothing to do with an objective valuation of the practice. A business is worth only what someone is willing to pay for it, and the value may be different at different points in time. But determining value and price are the prerequisites for a sale.

It is essential, however, to make certain that selling the practice is what you want to do. The American Bar Association in 1991 adopted Model Rule of Professional Conduct 1.17, which affirmed that an entire practice could be bought or sold. Since then, more than 40 states have followed with their own rules affirming the ethical viability of buying or selling a practice. Progress has been slow and reluctant. For example, it was not until 2008 that the New Hampshire Bar adopted its own version of Rule 1.17, which asserts that the selling lawyer cannot continue to practice law in the state of New Hampshire, in effect imposing a covenant not to compete. Lawyers rushing to sell their practices should make certain it’s what they want to do. They may not have a chance for a second act in the law.

This article recently was published in Lawyers USA, March 2009, and is published here with permission. Ed Poll, J.D., M.B.A., CMC, is a nationally recognized expert in law practice management. He consults with attorneys and law internal operations, business development, and financial matters. He may be reached at EdPoll@LawBiz.com.


Text of NH Rule 1.17 - Sale of Law Practice

A lawyer or a law firm may sell or purchase a law practice, or an area of law practice, including good will, if each of the following conditions is satisfied: (a) The seller ceases to engage in the private practice of law, or in the area of practice that has been sold, within the State of New Hampshire;

(b) The entire practice, or the entire area of practice (subject to the clients’ rights under Rule 1.17(c)(2)), is sold to one or more lawyers or law firms;

(c) The seller gives written notice to each of the active and inactive clients of the practice or practice area being sold regarding: (1) the proposed sale;

(2) the client’s right to retain other counsel or to take possession of the file; and

(3) the fact that the client’s consent to the transfer of the client’s files will be presumed if the client does not take any action or does not otherwise object within ninety (90) days of receipt of the notice.
(d) The fees charged clients shall not be increased by reason of the sale;

(e) If a client cannot be given notice described in section (c), the representation of that client shall be transferred to the successor lawyer or law firm for the limited purpose of protecting the interests of that client as and to the same extent as the selling or prior lawyer was required to do by these Rules, and the successor lawyer or law firm shall have a continuing obligation to reasonably attempt to provide the client with such notice to the same extent as may be required by these Rules; and

(f) The successor lawyer or law firm shall take possession of all the inactive or archival files of the practice or practice area being sold, and shall store, handle, or destroy them in accordance with the normal operating procedures of the successor lawyer or law firm and these Rules. Notice of the transfer of the inactive and archival files shall be published in an appropriate newspaper of local circulation and shall be provided to the New Hampshire Bar Association.


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