What to Include in Your Law Firm Partnership Agreement

Starting a law firm partnership can be exciting and filled with aspirations for growth and success. However, it’s important to remember the practical aspects and legal implications of entering into a partnership.  This is defined by the partnership agreement. A well-drafted partnership agreement is the foundation for your firm, outlining the rights and responsibilities of each partner, as well as the procedures for decision-making and dispute resolution. 

To ensure your law firm partnership is built on a solid and mutually beneficial foundation, you should include certain key provisions in your partnership agreement. At O’Rielly & Roche LLP, we understand the importance of a strong partnership agreement and can assist you in drafting a customized agreement tailored to your firm’s specific needs and goals. 

Don’t leave the success of your newly formed law firm to chance – contact us today to safeguard the future of your law firm. In the meantime, here are some of the most important provisions to include in your agreement.

Purpose and Organization of the Partnership

The purpose and organization of the partnership are the fundamental provisions that establish the formation of the partnership itself. It is important to clearly define the objectives and goals of the partnership, as well as the structure and hierarchy of decision-making within the firm. This provision ensures all partners are on the same page and have a shared understanding of the partnership’s purpose and how it will be governed.

Capital Contributions

Capital contributions refer to the initial investments made by each partner to establish and maintain the firm. You should define and identify  the amount of capital each partner is required to contribute and the timeline for those contributions. This provision helps to ensure there is transparency and fairness regarding the financial aspects of the partnership.

Profit Sharing and Loss Allocation

Profit sharing and, in remote instances, loss allocation, determine how the profits and losses of the partnership will be divided among the partners. This provision outlines the percentage or formula that will be used to distribute the profits and allocate the losses. It is important to clearly define these terms to prevent disputes or misunderstandings in the future. This is one area where disputes regularly occur if the relevant terms of the partnership agreement are not clearly set out. 

Decision-Making and Management

The decision-making and management provisions outline how the partnership will be managed and how major decisions will be made. This includes determining whether decisions will be made by unanimous consent or by a majority vote, for example, or whether the firm will have a Management Committee governing, as well as the role and responsibilities of each partner in the decision-making process. These provisions help to ensure the partnership operates efficiently and all partners have their respective say in the firm’s direction. It helps to reduce conflicts between partners regarding management decisions.

Partner Withdrawal and Termination

Partner withdrawal and termination provisions address the process for a partner to leave the partnership voluntarily or involuntarily. This includes specifying the notice period, the buyout process, and any restrictions on the departing partner’s ability to compete with the partnership in accordance with state law. These provisions protect the interests of both the remaining partners and the departing partner, ensuring a smooth transition in case of a partner’s departure.

Dispute Resolution

Dispute resolution provisions outline the methods and procedures for resolving conflicts or disputes between the partners. Terms might require mediation, arbitration, or allow litigation under specific state law. By including clear and effective dispute resolution mechanisms in the partnership agreement, partners can avoid costly and time-consuming legal battles and find mutually satisfactory resolutions.

Dissolution

Dissolution provisions address the process for winding down the business in the event of dissolution. It is important to outline the steps and priorities in the event of dissolution, including the distribution of assets and the settlement of any outstanding liabilities.

But You’re an Attorney: Why Do You Need a Lawyer to Draft Your Law Firm Partnership Agreement?

As a lawyer, you might be tempted to draft your own partnership agreement, given your legal expertise and understanding of contract law. However, establishing a law firm partnership requires a level of objectivity and comprehensive perspective that can be challenging to maintain when you’re personally invested in the venture. Just as doctors seek medical care from other physicians, lawyers often benefit from external legal counsel when structuring their own business arrangements.

Having an independent attorney draft your partnership agreement brings valuable objectivity to the process. An external counsel can provide critical benefits:

• They bring fresh eyes to the agreement, identifying potential conflicts and scenarios that emotionally invested partners might overlook in their enthusiasm for the new venture.
• They offer specific experience in law firm formation, including clear knowledge of state bar regulations and ethical requirements specific to attorney partnerships.
• They serve as an objective mediator during the drafting process, helping to balance competing interests and ensure fair terms for all parties involved.

Furthermore, partnership agreements for law firms involve unique considerations that differ from standard business partnerships. These include compliance with state bar regulations, ethical considerations regarding client relationships, and specific requirements for attorney partnerships. An experienced law firm formation attorney brings specific knowledge of these nuances and can ensure your agreement aligns with all applicable legal and ethical requirements.

Forming a Law Firm Partnership? Call O’Rielly & Roche LLP Today

At O’Rielly & Roche LLP, we have extensive experience assisting law firms in drafting comprehensive partnership agreements. Our team of legal professionals can guide you through the process, ensuring your agreement covers all the essential provisions and meets the specific needs of your firm. 

To safeguard the future of your law firm, call O’Rielly & Roche LLLP today at 213-437-3910  or contact us online and let us ensure your partnership agreement is robust and tailored to your firm’s goals.