After investing years in growing a practice, why forgo the chance to reap the benefits? Here is a crib sheet on the whens and hows of selling a law practice.
Think about it
After investing years of hard work and financial resources in building a successful solo practice, why would a lawyer forgo the opportunity to reap the benefits of that investment when it's time to retire? You could just close the doors and walk away. However, in many instances, the more beneficial choice is to sell the practice to another qualified lawyer.
The vast majority of states, following ABA Model Rule 1.17, now permit selling a law practice to another qualified lawyer. Be aware, though, that a small handful of states still prohibit such sales, so your first consideration is to consult the rules in your jurisdiction. And, of course, among jurisdictions that do permit a sale, the details of the rules vary, so you want to be conversant with what's involved in your locale. If you do decide to embark on the selling process, here's a snapshot of some key to-dos to get you started.
- Develop a timeline. The selling process is usually undertaken in stages: arranging the appraisal and valuation, preparing a sales prospectus and advertising that the practice is for sale, finding qualified buyers, negotiating the final purchase price and payment terms, and then implementing the transfer of the practice to the buyer. Given all the various requirements and deadlines, you will need to develop a written timeline to help you manage everything.
- Hire outside expertise. Some practices are so small and personal in nature that prospective buyers will doubt they can keep the clients without a continuing involvement of the retiring lawyer. However, even the smallest and most personal practices might be saleable for the right price and under the right terms. How do you determine appropriate price and terms? You will need to contract with an outside expert to conduct a proper valuation of the practice.
In addition, you will want to retain a professional consultant or broker for the actual selling process. Look for someone with experience in a practice purchase or sale in your geographic area or practice specialty. Along with knowing the ins and outs of the valuation process and the appropriate terms of a sale, qualified professionals will know how to sort through nonqualified buyers to get to the few who have the means and the motivation to buy your practice. Of course, to build the pool of potential buyers, you have to spread the word—business opportunities brokers, law firm management consultants, accountants, valuation firms and appraisers are all excellent resources to notify.
- Complete the necessary due diligence. Critical to closing the process will be complying with the rules of professional conduct regarding transfer of a practice. Again, you must consult the rules in your particular jurisdiction—but typically, you have to embark on a variety of steps in the months preceding your contemplated exit date. Among other specifics, the rules regarding sale of a practice require written notice to clients usually no less than 90 days before the transfer. Sellers must also inform clients of their right to retrieve their files and retain other counsel, and sellers need to close out all client trust accounts as well.
Other activities will include giving notice to the bar and the courts in which you are practicing, dealing with errors and omissions insurance (including contemplated "tail" policies), and last but not least talking to staff about who will go and who will remain with the buying lawyer. You will want at least six months out from your departure date to deal with the multiple to-dos involved at this point in the process.
- Be absolutely certain. You shouldn't venture into selling a practice until you're serious about getting out. It is possible to sell your practice and move to another city or a different firm to start a new one absent a covenant not-to-compete. However, if you sell your current practice and decide, say 10 days later, that you regret your decision and want to start back in practice and solicit previous clients, this would probably be a violation of both contract law and the rules of professional conduct.
Once you have a buyer, you must realize that you can't have a change of heart. A number of state bars require that after selling a practice, you either resign from the bar or adopt inactive status. Accordingly, your intent in selling should be to retire from the practice of law and move on to the next chapter of your life.