Tiered exit from practice means compensation, client autonomy

Tiered exit from practice means compensation, client autonomy

Posted by: Business Law - Bill Northcote , August 21, 2015

Transitioning out of professional practice through a two-step arrangement can help ensure a level of continuity, but there is no guarantee clients will want to move over to the incoming firm, says Toronto business lawyer Bill Northcote.

“Ultimately the clients have got complete autonomy. If the client says ‘you’re moving to X law firm, but I don’t want to go there,’ there’s nothing you can do about that,” Northcote, chair of Shibley Righton LLP’s business law practice group, says in Succession Planning, a special supplement published by The Bottom Line and Lawyers Weekly.

As the article explains, succession planning via a two-stage deal with a compatible incoming firm usually allows the selling lawyer to practice with the new firm for a defined period of time, before the final buyout occurs in the second phase.

During the first stage, parties will reach an agreement about how long the seller will work within the acquiring firm, and how they will be compensated.

For lawyers, explains Northcote, such compensation is normally based on a percentage of the billing from their work with their own clients, plus a percentage of the billings that others in the acquiring firm collect from working with the same clients.

“The deals that we’ve seen compensate the incoming practitioner [with] an amount in the range of 10 to 15 per cent of the fees billed and collected,” Northcote says in the article, adding that the selling owner will often continue to get a fee for two or three years after retirement.

Arrangements that do not work out can typically be terminated upon notice of about three months, says Northcote.

“Usually, it’s mutual. If either side’s not happy, then it’s not a healthy relationship, and it’s better for people to move on,” he says in the article.