Retirement: Is Your Partnership Agreement Doing Its Job?
Source: CPA Trendlines
The following includes excerpts, reproduced with permission, from an article by Marc Rosenberg
Twenty to 30 percent of all accounting firm partnership agreements have no provision for goodwill-based retirement payments to partners departing due to death, disability, retirement, or withdrawal.
The reasons for this could be any or all of the following:
- They can't agree on buyout terms.
- They don't want to make retirement payments.
- They don't address buyout provisions in their partner agreements because their exit strategy is to merge up.
- They haven't gotten around to it.
If these firms believe that remaining silent on the subject of goodwill-based partner retirement means they won't ever have to make these payments, they should think twice. They still may be required to pay goodwill value to a departed partner.
To the extent that the partnership agreement does not address the subject of retirement payments to departing partners, applicable state partnership laws will govern. Most state partnership laws provide that a departing partner is entitled to be paid a pro-rata share of the greater of the liquidation value of the firm's assets or the firm's going concern value unless the firm's partnership agreement provides otherwise.
Russell Shapiro is a partner with the Chicago law firm of Levenfeld Pearlstein and works with CPA firms on firm governance issues and partnership agreement disputes. Shapiro has simple advice for firms that don't wish to provide for goodwill-based benefits to departed partners: “These firms should amend their partnership agreements by adding specific language stating exactly what they will pay to departing partners. This will greatly strengthen the firms' position.”
Of course, as with most legal advice, there may be exceptions. Also, laws and practices vary from state to state.
For the complete article, read “Why 30% of CPA Retirement Plans Are Ineffective.”
From CPA Trendlines, July 5, 2015, cpatrendlines.com.