Law Practice Management Asked and Answered Blog

Category: Several

Dec 20, 2016

Law Firm Succession Planning – Selling My Stock to Several Associates

Question:

I am the sole owner of a five attorney personal injury plaintiff firm in the Dallas suburbs. Over the years I have built a sustainable brand through advertising. I have helped my associates develop their reputations, handle substantial cases, and be involved in various areas of firm management. I am planning on retiring in five years and I would like to begin the transition early next year by selling some stock (minority interests) to deserving associates with the remainder of my shares to be purchased upon my retirement. Originally, I had through about selling shares to two associates that have been with the firm for over fifteen years – now I am thinking about selling shares to all four associates. I think it would be easier for the four to come up with the required money. I welcome your thoughts.

Response:

If you are asking for a goodwill value plus cash-based book value as well as a percentage of completion estimated value of your contingency fee cases in process, the amount you are asking for your stock could be considerable. This would indeed be difficult for one or two people to raise and on its face it would make sense to sell your shares to all the associates. If this is not the case if may be possible to the two senior associates to raise the required funds.

Here are my thoughts:

  1. You know your people best but give consideration to the future partner dynamics. You are going from a sole owner structure to a five attorney ownership structure if you bring them in all at the same time. This will require some major adjustments in governance, compensation, etc.
  2. Are the two newer associates deserving of ownership? Have they developed their skills and earned the respect of the other associates in the firm and others outside of the firm?
  3. What do the two senior associates think? Do they want to be future partners with each other? Are they able to come up with the money? Do they initially, after your retirement, want other partners? Do they want the other associates to be their partners – initially or down the road?
  4. Interview your two senior associates and get their thoughts on the above questions. They may want to enjoy the benefits of leverage from having less partners as you have over the years. 
  5. My guess is that your senior associates would prefer to go it alone if they can swing it.

Don't try to force future partners on your two senior associates. I will rather see you initially admit the two senior associates as partners and let them admit other partners after your retirement when they are ready.

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John W. Olmstead, MBA, Ph.D, CMC

 

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