Last week I discussed the entity choices available to lawyers starting a new law firm. This week, I’m going to discuss various agreements lawyers may want to use in their new law firm.
If a new law firm will have more than one owner, then the lawyers should clearly outline, in writing, the duties and obligations owed by the lawyers to each other and to the firm.
The nomenclature and details differ slightly depending on which entity type is used (i.e., partnership agreement for LLP, operating agreement for LLC, shareholder agreement for PC), but a written “partnership agreement” is a necessity.
Questions the partnership agreement should answer include the following:
- Are partners required to devote their full vocational efforts to the firm and to the practice of law?
- Are partners allowed to pursue other business ventures? If so, should they be required to get firm approval first?
- Should partners be allowed to serve as officers or directors in other businesses with or without pay?
- Should all partners share all firm responsibilities equally?
- Should defined responsibilities be assigned to certain partners?
- Is unanimous or majority consent required for all decisions?
- Are voting rights proportional to ownership percentage?
- Should major decisions be distinguished from minor decisions?
- What procedures will control deadlock situations?
If the new firm will have associates, the law firm may want to have a written agreement to use with its associates. Such agreements are particularly useful for firms that do primarily plaintiff’s contingency work.
These agreements should discuss, among other things, what happens if/when an associate leaves the firm (e.g., notice to clients, any continued compensation obligations, future fee-splitting).
Contract Attorney and Of Counsel Agreements
A new law firm may decide not to hire a full-time associate attorney and instead opt for using contract or freelance attorneys on an as needed basis. And a new firm may choose to associate with an of counsel attorney.
On the flip side, a solo attorney forming a new firm may need to supplement his or her income and, to that end, serve as a contract attorney or as of counsel to another existing firm.
Under these scenarios, written agreements outlining the relationships and duties would be helpful.
If the new firm will have a high level employee such as an office manager, then an employment agreement may also be something to consider. Such high level employees, who are typically not attorneys, will have access to confidential firm and client information that must be protected. An employment agreement is a vehicle that can be used to highlight the importance of confidentiality and discuss additional duties and obligations owed by the employee to the firm.
Starting a new law firm is an exciting pursuit and is often done with an eye towards minimizing costs. Lawyers often postpone or completely forego having any of the written agreements discussed above. That approach may seem preferable or even necessary, but it is fraught with danger. Clearly drafted (and signed) agreements can save a law firm significantly more than the cost in the long run and should not be so casually brushed aside.