Lawyers in Transition Toolkit Part 14: Important Tips on Selling Your Law Practice
It has been 21 years since North Carolina adopted a formal rule regarding the sale of a law practice.
But it’s been only recently that the concept has really caught on. And according to the state’s largest law firm brokering and transition service, continued growth is expected.
“The legal profession continues to change and with that change come new challenges as well as new opportunities,” says the website for The Law Practice Exchange.
Selling a law practice is obviously different than selling a used car. For one thing, clients are not Chevys and Fords. There are a host of ethical and professional concerns.
Rule of Professional Conduct 1.17 (adopted in 1997) sets out specific ethical obligations – from notifying clients to collecting unpaid fees – that must be met in a law practice sale.
“The practice of law is a profession, not merely a business,” says Comment 1 to Rule 1.17. “Clients are not commodities that can be purchased and sold at will.”
Preserving Your Legacy
“We try to take what an attorney or group of attorneys has built and preserve it for the future,” says attorney Tom Lenfesty, attorney and founder of The Law Practice Exchange.
Accordingly, in addition to providing listing and brokering services, the Exchange helps selling attorneys do the following:
- Preserve Client Goodwill
- Provide Exit Strategies & Retirement Options
- Promote Mentorship
- Provide Alternative Growth Options
- Serve Clients Continuously
- Prepare Practices for Change and Transition
- Develop Succession Strategies
- Search for Potential Buyers Confidently and Confidentially
“Rule 1.17 of the North Carolina Rules of Professional Conduct is the seminal authority on your responsibilities during and after this process, laying out certain conditions precedent to the ability to sell and providing guidelines on the post-closing transition,” writes Lenefesty here. “In addition, there are a number of other ethical responsibilities that apply depending on the structure of the transaction (i.e. merger v. sale).”
Lenfesty says it is also critical to prepare a timeline. “Knowing what is needed and if you can provide the time and effort to transition the clients and their associated goodwill to any purchaser is vital,” he writes. “Each practice is unique and specifics should be worked out not only on total time, but how the day-to-day roles will work.”
Another key: Rule 1.17 says written notice of the proposed sale must be sent to all clients who are currently represented by the seller and to all former clients whose files will be transferred to the purchaser. Although it is not required, it is a good idea to place a notice of the proposed sale in a local newspaper of general circulation.
5 Practice Tips for Selling a Law Practice
- Make sure you are ready. “Selling your practice can be very draining mentally, emotionally, physically and financially,” says Lenfesty. “Take the time to talk it through with your loved ones. What are their expectations? What are yours? Are they reasonable? Does it matter? Make sure you are fully prepared for these and other transition consequences.”
- Review Rule 1.17. Download a copy and follow it to the letter. Call the State Bar and talk to an ethics counselor for guidance.
- Clarify the scope of the transaction. Rule 1.17 applies to the sale or purchase of a law practice, or an area of law practice, including good will.
- Read this article. It lists eight important considerations – from valuation to tax aspects – involved in a law practice sale.
- Talk with your legal malpractice insurance provider. Maintaining adequate coverage through and beyond the sale of your practice is vital. Talk with your provider about an Extended Reporting Endorsement, or “tail” coverage.
Sources:
· NC State Bar Rule 1.17 https://www.ncbar.gov/for-lawyers/ethics/rules-of-professional-conduct/rule-117-sale-of-a-law-practice/
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Key Considerations in a Law Practice Sale http://www.lawyersmutualnc.com/risk-management-resources/articles/eight-key-considerations-in-a-law-practice-transition-agreement
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The Law Practice Exchange TheLawPracticeExchange.com
