To Avoid Paying Goodwill, Put It in Your Partnership Agreement

Source: The Marc Rosenberg Blog

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

Firms without goodwill-based provisions in their partnership agreements may still be required to pay goodwill value to a departing partner.

The 2011 Rosenberg Survey showed that 23 percent of all CPA firms had no provision in their partnership agreements for goodwill-based retirement (or “deferred comp”) payments. If these firms think that being silent on the subject of payments to departing partners for the “goodwill value” or the “going concern value” of their partnership interests means they do not have to make these payments, they should think twice. Most state partnership laws provide that a departing partner is entitled to be paid his or her pro-rata share of the greater of the liquidation value of the firm's assets or the firm's going concern value unless the partnership agreement provides otherwise.

Russell Shapiro, a partner with the Chicago law firm of Levenfeld Pearlstein, has this advice for firms that don't wish to pay goodwill to departing 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 firm's position.” Of course, as with most legal rules, the information above is general, and varies from state to state. Similar rules normally apply to limited liability companies but not necessarily to corporations.

For the original entry, read “Partner Agreements: Rules on Goodwill-Based Provisions.”

From The Marc Rosenberg Blog, May 22, 2012, http://blog.rosenbergassoc.com/.