The Paperwork You Need When You Sell a Law Practice
By: Justin Farmer
For years lawyers could not sell their law practices because it was considered unethical. The prevailing theory behind deeming the sale of a law practice unethical was tied, in large part, to the client’s right to choose a lawyer and, in practicality, generally left single-owner firms with an asset they could not sell (while large firms were merging, acquiring books of business, etc.). Today, however, it is both ethical and common to sell a law practice, but the structure of the transfer of your law practice, and, thus, the documents you prepare must take the ethical rules into account. Below are some of the most important documents to have on hand once you decide to start the process of transferring your firm to a new owner.
General Documents for the Sale of a Law Firm
Some documents are necessary for the sale of any business. These include:
- Copies of the firm’s state and federal tax returns for the last three years
- Financial statements including summary profit and loss reports and balance sheets for the last three years
- Projections and cash flow statements
- A listing of authorized persons that can sign documents for your firm, if applicable
- Copies of documents pertaining to the firm’s incorporation, partnership, or the LLC
- Copies of any insurance policies
- A listing of all employees and copies of their employment contracts
- The legal description of the firm’s office space or building
- Copies of leases for any equipment used in your office, as well as the operating manuals for them
- Current accounts receivable and accounts payable reports
- A listing of any creditors
Although a business broker can advise on any other documents you may need for the sale of your law firm, this general list will get you off to a good start.
The sale of any law practice typically includes the transfer of a client list from one owner to another. While this is also commonplace among other businesses, it must be treated slightly differently when a law firm is for sale. Because it is unethical to “sell” a client file and the attorney of record must adhere to the rules governing attorney-client privilege, you must be careful with how client information is transferred.
According to Comment 7 to Rule 1.17, as long as the list provides only general information, firm owners and managing partners can disclose a client list as part of the due diligence process. Practically speaking, it makes the most sense to first provide key client metrics, such as type of case, revenue history, and other non-confidential information before sharing client names. Then, before any information is released that is considered more specific, clients should be given notice of the pending transfer/sale/merger of the practice. Regardless of the information provided, potential buyers are required to keep client information confidential.
Our Business Brokers in Washington can Help You Sell a Law Practice
When you want to sell a law practice, there are many steps to take. To ensure the success of the sale and that the entire transaction goes as smoothly as possible, you should not go it alone. At Private Practice Transitions, our Washington business brokers can help. We have the necessary experience to ensure the sale of your firm is a positive experience; we will help you find potential buyers and get top dollar for your firm. If you are thinking about selling, call us today at (253) 509-9224 or contact us online to get the help you need with the sale.