Does Your Partnership Agreement Protect Your Firm?

Source: CPA Practice Management Forum

In this Q&A, consultant Allan Koltin offer recommendations for ensuring that your partnership agreement protects the firm. Here are some of the highlights:

• Have the agreement reviewed annually by an attorney experienced in working with CPA firms.
• Avoid terms that make it easy for departing partners to take clients with them, making it difficult for the firm to establish and maintain long-term client relationships.
• If your agreement requires partners who take clients with them to compensate the firm (by paying one times the prior year's fees, for example), require departing partners to pay for clients that follow them to a new firm, regardless of whether the partners actively pursue them.
• Consider terms that reasonably restrict exiting partners from practicing public accounting within a certain geographic region or for a certain period of time after exiting the firm.
• Some firms require departing partners to compensate the firm for staff members they take with them (one year's salary, for example). Firms should require all employees to sign an employment agreement that protects, to some degree, the firm's investment in each employee.
• Stipulate a mandatory retirement age of 65 and maintain control of any allowances for retiring partners to continue working past 65.
• Include terms that allow the firm to keep a partner's capital and deferred compensation if he or she breaks the agreement.

For the complete article, read “Protecting the Firm.”

From CPA Practice Management Forum, September 2012, CCH Incorporated.