It's 2012, Do You Know Where Your Partnership Agreement Is?
Source: The Managing Partner Advisor
A partnership agreement is a critical tool for defining firm-partner relationships. Yet many firms either have no agreement or haven't reviewed their agreements in years or even decades.
As you create or update your agreement, consider these six key provisions:
- Mandatory retirement. Retirement ages have been increasing. But whatever “normal” retirement age is for your firm, be sure to define it.
- Notice and client transition. Increasingly, agreements are requiring partners to provide reasonable notice before exiting the firm and to have a plan for transitioning clients over time.
- Caps on retirement benefits. Whatever the benefit amount, be sure to impose a cap on total retirement benefits paid out in a year. Numbers typically range from 10 percent of profits to 10 percent of gross revenue.
- Competition provisions. These provisions are state-law-driven, but there's a trend away from prohibiting competition and toward compensating the firm for clients that are taken away (based on one year's billings, for example).
- Vesting. Some agreements provide for retirement benefit vesting based on years of service, such as a 25-year scale with full vesting after 25 years. Age may also be a factor. For example, an agreement might call for benefits to be discounted 2.5 percent for each year short of mandatory retirement age. Many firms use a combination of service- and age-based factors.
- Dispute resolution. Increasingly, agreements are providing for disputes to be resolved through arbitration, which often is preferable to a jury trial.
For the complete post, read “Do Your Partner Agreements Include These Six Key Provisions?”
From The Managing Partner Advisor, the blog of Gary Adamson, CEO of Adamson Advisory, http://adamsonadvisory.com/blog, December 13, 2011.