Why You Must Review Your Partnership Agreement

If I only had a dollar for every time a partner said, “I haven’t looked at my partnership agreement since I became a partner/joined this firm – I wouldn’t even know where to find it.”    

Once you decide to enter the market, it’s important that you (find and) review your current partnership agreement sooner rather than later.  Why? It dictates a number of factors that are important during the lateral process.  The two most important considerations are: 

  • How long until your capital is returned?
    • Why it’s important:  If your new firm requires a capital contribution up front (as opposed to taking it from your compensation), you need to know whether you may be exposed with two sets of capital at the same time, or whether this is something you can negotiate with your new firm.  For example, sometimes the new firm will postpone your capital contribution requirement until after you have received your capital from your prior firm.  For example, if your prior firm is paying you back 1/3, 1/3, 1/3 over three years, perhaps your new firm may allow you to pay in 1/3, 1/3, and 1/3 over the first 3 years so it corresponds with your receipt of the returned capital.
        
        
  • What are your fiduciary duties to your partnership?    
    • Why it’s important:  There are various moving pieces in terms of ethical and fiduciary obligations related to your departure:  Your duties to your firm via your law firm partnership agreement, your ethical duties to your firm and clients based on your state bar’s ethics rules. 
    • Some firms have terms that are very stringent on what you can and can’t do, and some even require you to notify them if you are seriously contemplating a move.  (Is it enforceable?  That’s a whole different discussion.) And on top of this, what you need for your practice and ability to move your clients is obviously important.  This is rife with competing interests.   
    • Navigating these moving pieces is messy and, candidly, when partners leave they often do not follow all of the requirements to the letter of the law or agreement, especially since some of the provisions that firm’s include in their partnership agreements are plain unenforceable and they know it.  This is discussed more in the Acceptance and Giving Notice section, but it’s beneficial to know what your partnership agreement says sooner rather than later so there are no surprises.   

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Picture of Author: Dan Binstock

Author: Dan Binstock

Dan co-owns Garrison & Sisson, where he focuses on lateral partner and practice group placements. He has consistently been recognized as one of the Top 100 Global Legal Strategists and Consultants by LawDragon, and authored "The Attorney's Guide to Using (or Not Using) Legal Recruiters." Dan is the Immediate Past President of the National Association of Legal Search Consultants (NALSC), where he also served as Chair of the Ethics Committee. Visit here to learn more about Dan, or contact him confidentially with any questions at (202) 559-0492 or dbinstock@g-s.com.

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