Can You Practice After Selling Your Law Firm? Here is What the ABA Has to Say
Not every lawyer who sells their practice wants to retire. Some want to move to a different geographical location, or they may want to join another firm as a partner. These are just a few of the reasons an attorney may want to sell their practice, but not necessarily stop practicing altogether. So, if you are a lawyer who wants to sell your practice, are you prevented from practicing law after you sell your firm? Below is what the American Bar Association (ABA) has to say.
The Introduction of Rule 1.17
For decades, lawyers could not sell any part of their practice except physical assets, such as furniture and office equipment. That meant that lawyers could not sell the goodwill of their practice, which is essentially revenue from current or future clients. However, during the 1990s, the ABA promulgated a new rule, known as Rule 1.17, which has changed how lawyers can sell a law practice.
Under Rule 1.17, lawyers can sell any part of their practice, including goodwill or, put in another way, clients (with consent, of course). And while the application of Rule 1.17 can be slightly different depending on the state you are in (make sure to check your local rules), many of the terms of Rule 1.17 are consistent, to include that the lawyer selling his or her practice must stop practicing in the same jurisdiction, or area of practice, in which they sold. The seller must have also provided their clients with appropriate notice of the sale, and must not charge their clients more due to the sale.
Since the ABA first promulgated Rule 1.17, some outstanding questions regarding how Rule 1.17 is applied remain. Does selling the practice prohibit a lawyer from helping the purchasing lawyer with the transition of the sale? In October of 2015, the Standing Committee on Ethics and Professional Responsibility issued a formal opinion on the subject, known as Formal Opinion 468.
Formal Opinion 468
According to Formal Opinion 468, lawyers who sell a practice or area of practice can assist the purchaser with the transition for a reasonable period of time. The fact that clients cannot be billed for money spent on transitional matters still remains. However, as expected when it comes ot rules and lawyers, more questions, than answers, seem to remain surrounding the Formal Opinion. Namely, what is considered a reasonable timeframe for the selling lawyer to assist with the purchase and what constitutes proper notice.
The committee has not provided any timeframe that is considered reasonable, but has stated that timeframes will be evaluated on a case-by-case basis. However, the committee was very clear about the fact that the selling lawyer should not take any new clients in the area of law being sold, and that requirement should take effect immediately after the sale.
Learn More With Our Business Brokers in Washington
You have a lot to consider when selling your practice. You want to get top dollar for it, ensure a smooth transition, and of course, make sure you are not breaking any laws. At Private Practice Transitions, our Washington business brokers are here to help. We can help you value your practice, find a buyer, and shine a light on the most important considerations throughout the entire sale. Call us today at (253) 509-9224 to schedule a meeting with one of our knowledgeable brokers and to learn more about how we can help.