At one practice, it was the bank manager who first raised a question that had been on the minds of all but one of the partners sitting around a table: “When were you thinking of retiring?” Succession planning is a tricky subject to address and it is a forward-thinking managing partner who puts the topic on the agenda. But there are a number of long-term issues to be addressed in further detail.
Partnership agreements
Many small and medium-sized legal practices do not have formal partnership agreements.
Frequently, we find a draft agreement but the partners are unable to agree on a number of matters and it never gets finalised. Typically, partners due to retire in a few years will focus on short-term profits, while younger partners will hold a long-term perspective.
While it can be a painful experience to get it agreed, a partnership agreement will make sure everybody knows where they stand and ensure forward planning. The agreement should incorporate a number of retirement provisions, including a fixed retirement age.
The key provisions for long-term financial stability are those relating to the calculation of the partners’ capital account and their final tax charge and the period over which these will be paid. It is difficult to predict the cash-flow consequences of retirement unless these are known.
