Partnership Agreements: Legal Issues to Consider -- Continued

Source: The Marc Rosenberg Blog

The following includes excerpts, reproduced with permission, from a blog entry by Marc Rosenberg.

At a recent meeting of my monthly roundtable, Russell Shapiro, partner with the law firm of Levenfeld Pearlstein, spoke about issues rarely addressed in CPA firm agreements. In a previous entry, we listed four items. Here are four more.

1. Is mandatory retirement of equity partners enforceable? Yes, for the vast majority of firms, but the key is whether the partners are “owners” or “employees” under the law. Despite some negative precedent in cases involving equity partners at mega law firms, most CPA firms need not worry, says Shapiro. These cases likely aren't applicable to most local CPA firms, which are substantially smaller and whose equity partners have the indicia of ownership.
2. Does a terminated partner's liability to the firm end on the day he or she leaves the firm? Not necessarily. Examples: A partner's share of the office lease, and acts committed by the departing partner that result in claims against the firm and related expenses for malpractice, fraud, etc. It will depend on what the partnership agreement says.
3. Should “partners” in an LLC refer to themselves as “members” on their correspondence and business cards? In Shapiro's opinion, while the use of the term “member” might be a best practice, he opines that use of the term “ partner” informally is fine.
4. Can a partnership agreement provide for a reduction of deferred compensation benefits if a retired or withdrawn partner fails to (a) provide the stipulated notice or (b) properly transition clients to other firm personnel? Yes, for the most part, but many agreements fail to specify penalties for noncompliance. When I have pointed this out to firms, they quickly respond that it is almost impossible to put in writing the definition of “proper client transition.” It may be difficult, but it can be done.

Two important caveats: (1) Several of these issues are governed by state laws, which vary considerably from state to state and (2) the term “partnership agreement” is applicable to all legal entities.

For the original entry, read “CPA Partner Agreement Issues – Part 2.”

From The Marc Rosenberg Blog, September 11, 2012, http://blog.rosenbergassoc.com.