The end of a law firm marks a critical time for law firm partners, shareholders, and clients, and must be handled with the utmost care. The right advice and guidance is essential in protecting the personal and professional interests of individual partners, their clients, and firm employees.
Law firm dissolutions happen for a variety of reasons which are not necessarily linked to the poor economic health of the firm. In small to medium-sized firms, law firm partners and managers often consider dissolution when a significant partner or group leaves, when a practice group or client base changes and can no longer support the firm, or when fundamental disagreements change the direction or future of the firm. Large firm dissolutions are typically about unsuccessful economic strategies or a changing marketplace, and often occur out of necessity after failed merger or acquisition talks.
Our experienced team of partners has unparalleled experience in advising and guiding law firms and law-related businesses through all phases of the dissolution process, including pre-dissolutions considerations, options and planning, wind-up, and termination.
Pre-dissolutions Considerations, Options, and Planning
Sometimes a law firm has no choice but to dissolve, but in many situations there are other options to consider. Depending on the size of the firm and the terms of the partnership agreement, a dissolution can also be triggered by the act of a partner or group of partners. Understanding the significance of a dissolution, what it means for the firm, its clients and partners, and what is entailed to properly effectuate and complete, are keys to determining the best path forward. We advise our law firm clients in all phases of pre-dissolution considerations, including whether to dissolve, exploring acquisition or merger, buyout or other options, and when necessary, how to properly effectuate a dissolution in a way that protects clients and individual partners, maximizes liability protections, and allows lawyers to move to a new law firm with their practices and professional reputations intact.
Winding Up the Law Firm
Once the difficult decision to dissolve a law firm has been made, execution of the dissolution and windup requires thoughtful planning, precision, and care. We work with firms to design and implement dissolution windup plans that comply with their ethical and legal obligations to clients and third parties and protect client interests and the interests of law firm partners. When necessary, we assist our clients in finding the right team of people – accountants, restructuring officers, liquidators, and other wind-up specialists – and we collaborate with them to ensure the wind-up is handled properly and efficiently.
The right advice at the right time is critical here. Our checklists, wind-up plans, and key analysis help our law firm clients make critical decisions properly, including: how and when to notify clients, employees and other third parties; how to handle leases, contractual and other third-party obligations; how to manage accounts receivable, accounts payable, work in process, invoicing and getting paid; what insurance and tail policies are required, and which should be maintained and for how long; meeting record-keeping obligations for clients, IOLTA, firm financial and employment records, and how best to maintain records in compliance with ethical and legal obligations; asset inventory, liquidation and disposal; and other administrative, financial and regulatory considerations.
Questions also arise during a law firm wind-up about which partners, if any, need to assist with, or manage the wind-up process, whether those partners will be compensated, who will be considered partners in a dissolution, and if capital partners can be paid anything from the firm, when is the proper time to do so. We provide specialized counsel to law firm partners and managers to resolve the complex issues surrounding the return of capital and distributions to partners (if there is money to be paid out), when a partner is considered a creditor of the firm, how to handle personal guarantees, and to properly navigate the unfinished business rule, among other issues.
Terminating the Law Firm
Entity termination is the last step in a law firm dissolution. But it is an extremely critical one. Knowing how, and when, to properly terminate a law firm entity can mean the difference between maintaining the liability protections of the law firm entity structure during the windup and needlessly exposing law firm partners to unnecessary risk and potential personal liability. We provide straightforward advice on how to navigate entity registration, renewal, and termination during dissolution and wind-up with both the Secretary of State and the State Bar of California in order to best protect law firms and their partners.
Our robust and thoughtful advice, born of years of experience to law firm clients in dissolution, gives our clients the peace of mind to move on the next phases of their legal life knowing they are protected.