Legal Services Business

A law firm was purchased by three lawyers from retiring members of the firm. The three lawyers wanted to more efficiently manage the firm and to derive greater benefit from ownership of the firm than had the founders.

After initial analysis, it was apparent that the talent of the lawyers, which was considerable, was wasted on management issues not involving the professional matters for which they were trained. One of the owners was spending significant time on management in the absence of someone who could provide business management leadership for the firm. In addition, the owners had not planned whether they wished to operate a corporate professional corporation providing retirement benefits, fringe benefits, and increasing value or whether they wanted to operate a pass-through S corporation to maximize cash distribution potential to the owners.

The lawyers were able to draft a succession plan stating their agreement on governance of the law firm involving the hiring of a qualified business manager for the firm, and an agreement concerning the cash distribution and tax status of the firm. In addition, the owners signed a buy-sell agreement establishing the value of the firm among them and providing for contingency purchase of ownership shares.