Does Your Partner Agreement Contain These 16 Critical Provisions?

Source: The Marc Rosenberg Blog

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

I’ve identified what I consider the 16 most critical provisions in CPA firm partner agreements.  The items are not listed in order of importance.  Interestingly, it’s common for these 16 items to be improperly addressed or omitted altogether.

1. Partner retirement/buyout. Either provide for this or specifically state that there will be no buyout.
2. Ownership percentage. Many firms make the mistake of placing too much importance on ownership percentage.
3. Partner capital. Don’t allow partners to manipulate their capital accounts with unrestrained and excessive withdrawals.
4. New partner buy-in. All partners should have a meaningful amount of money invested in the firm that is at risk.
5. Voting. Don’t allow a small number of power partners to disenfranchise low ownership and/or new partners.
6. Death and disability. Benefits should be calculated the same as a normal retirement.
7. Overall firm management. Management by committee or the full partner group is a recipe for disaster.
8. Managing partner. Give strong decision-making authority to the MP.
9. Executive committee. Functions as a Board, not a committee that manages the firm.
10. Non-solicitation covenant. The firm must protect its intellectual property and assets.
11. Partner compensation. Be short – one or two sentences at most, using very general terminology.
12. Partner duties. Partners must devote 100% of their time to the firm; no side businesses or service to boards or governments without the firm’s approval.
13. Prohibitions and expulsion. If you don’t provide for these, the firm has very little recourse to penalize partners who commit bad acts or perform poorly.
14. Mandatory retirement. Even if the firm wishes to allow partners past retirement age to continue working, firms should still have a mandatory retirement provision.
15. Non-equity partners. For decades, CPA firms have erred in promoting managers directly to equity partner as a retention device and other reasons, regardless of their ability to function as an equity partner.
16. Sale of the firm. The proceeds should be allocated based on each partner’s relative retirement benefits.

For the complete entry, read “Is Your Partner Agreement Deficient? 16 Must-Have Provisions.” 

From The Marc Rosenberg Blog, June 11, 2018, https://rosenbergassoc.com/marcs-blog.