Have You Looked at Your Partnership Agreement Lately?

Source: Accounting Today

Several consultants discuss the importance of having – and referring to – an up-to-date partnership agreement. It's the roadmap for most critical partnership issues – including firm governance, compensation, and retirement – yet many firms fail to refer to it or keep it current.

August Aquila puts it bluntly: “If you don't have one, you're basically screwed.” In Aquila's experience, if a firm without a partnership agreement faced an important issue like death, disability, or a partner buyout, “it nearly took a civil war to resolve it.”

Unfortunately, because each partnership is unique, there's no standard template for partnership agreements. As a result, updating or rewriting an agreement is a time-consuming process that's readily put off.

Russell Shapiro, a lawyer with Chicago's Levenfeld Pearlstein, suggests firms start by forming a partnership agreement committee with, for example, two younger partners, two older partners, and a “neutral” partner. This helps ensure that the agreement balances the younger generation's desire for control against the older generation's desire for financial security.

Retirement, mergers, next-generation growth, and non-compete/non-solicitation provisions are critical issues to be addressed. Firms typically demand 1.25 times annual fees if a departing partner wants to take a client, though some firms ask for as much as 1.5 to two times annual fees. For partners who take staff with them, fees range from 50 percent to 150 percent of salary.

For the complete article, read “Partners: Time to update your pact.”

From Accounting Today, February 1, 2011, SourceMedia Inc., One State Street Plaza, 27th Floor, New York, NY 10004, 800-221-1809.