for Closing or Selling
a Law Practice
© Copyright Jay Foonberg, 2002, 2003
Closing A Law
Why This Checklist Has Been Written
This checklist has been written because there is a need for it. Many
anecdotal stories have been written by widows and others describing
how no one was prepared to close the office and there was nowhere to
Hopefully this checklist will help the lawyer
who is voluntarily retiring or who has the time to do many of the things
on the list in advance. The checklist may also be of help to those who
are called upon to close down a law practice of another where there
was no preparation for closing.
This checklist is only a starting point and must
be used in conjunction with local ethical rules which vary greatly from
jurisdiction to jurisdiction.
It is anticipated that this checklist will be
expanded and eventually become part of a larger publication and be made
available on the internet at this URL, www.SeniorLawyers.org and at
www.LawPracticeSales.net, along with links to applicable state and local
ethics rules and governing bodies.
When it is Necessary to Close a Law
A law practice may have to be closed permanently
or temporarily, completely or partially for any of the following reasons:
1. The Lawyer dies.
2. The Lawyer is physically or mentally unable to practice law.
3. The Lawyer wants to retire.
4. The Lawyer is disbarred.
5. The Lawyer is disciplined.
6. The Lawyer is elected or appointed to public office.
7. The Lawyer accepts an employment opportunity which requires leaving
8. The Lawyer is drafted or activated into military service.
9. The Lawyer is leaving the state.
10. The Lawyer is merging practice with another Firm and must get out
of certain types of cases (Plaintiff; lawyer is joining defense firm
11. The Lawyer is selling part or all of the practice.
12. The Lawyer walks out the door due to "burn out."
13. The Lawyer suffers temporary or permanent problems with drugs or
alcohol addiction. (Stress, drugs, alcohol, money problems due to law
There may be hundreds or thousands of necessary
communications to clients and from clients. Staff has to be kept or
fired. Occupancy must be dealt with. Records and Files disposition must
be accomplished. Final tax returns must be prepared and filed and taxes
paid. Compared to medicine, dentistry and accounting, the ethical requirements
A. Who is going to do the work?
1. The lawyer, if alive and competent and available.
2. The executor of the lawyer's estate.
3. The conservator or guardian of the lawyer.
4. Another lawyer or firm with whom prior arrangements have been made.
5. The lawyer's widow or widower.
6. Various entities which exist on an ongoing basis or ad hoc basis
as needed. These entities may exist within the framework of the Bar,
the Bar's disciplinary or ethics system, the state's judicial system
or at a local county level. These entities often get the work done by
pro bono lawyers or nominally paid volunteers.
7. The purchaser of the practice.
B. Why is closing down a law practice any
different than closing down any other business?
The tasks which have to be done when closing
a law practice are about the same as those which have to be done in
closing any business including a medical practice. The major differences
are the ethical conditions superimposed on the task which make the tasks
difficult and sometimes impossible to accomplish. Most of the ethical
conditions superimposed are designed to either protect the confidentiality
of client information and/or to prevent other lawyers from offering
to help the clients because of solicitation concerns.
C. Specifically, what has to be done?
It is very difficult to find a logical point
to begin or end accordingly, the tasks listed may not be listed in a
8 Get a set of keys to the premises and to interior
locked file cabinet and offices. If there is a safe try to locate the
combination. Ask the landlord for help. Ask the most recent employee
for help. If necessary get a locksmith. Change the locks and combinations
to protect the office files and assets.
9 Contact the current or most recent staff to
arrange their employment, if available on a full, part time or temporary
basis, to help in the closing down process.
10 Open all mail as it arrives to look for information
on pending client matters, bills that have to be paid, tax returns that
have to be filed, income that may come in, etc.
11 Arrange with the landlord or other entity
for both a cancellation of the old lease or tenancy arrangement and
the creation of a new arrangement.
12 If there is a known CPA or bookkeeper or
file system try to locate all existing insurance policies, including
malpractice, workers compensation, medical, life, general liability,
13 Arrange with the insurance agents or companies
involved for a termination of the policies or the issuance of new policies
to protect the person(s) or entities closing down the practice.
14 Determine if a "tail" malpractice
policy can be obtained to protect the lawyer's estate.
15 Look for checkbooks, canceled checks, bank
statements and incoming mail for information on existence of checking
accounts, savings accounts and safe deposit boxes. Notify banks. Determine
if old accounts must be closed and new accounts opened.
16 Determine which "final" and new
tax returns must be filed. Consider Federal, State and local payroll,
occupancy and sales taxes. Identify federal and state Employer Identification
17 Ask local court clerks to run a computer
search to determine if attorney is attorney of record on any open matters.
18 Examine all incoming mail to determine open
client matters. Be especially alert for documents indicating the possible
existence of an assumption attorney.
19 Determine if attorney had an arrangement
with another attorney (sometimes called an assuming attorney or assumption
attorney) who previously agreed to assume practice of deceased or disabled
20 Ask surviving spouse or office staff if attorney
had a close friend attorney who might have agreed to be an assuming
21 Ask local bar association(s) to send email
alerts to members and public notice in bar publications announcing death
or disability of attorney and asking for information as to any assuming
attorney or attorneys with client matters with the deceased or disabled
22 Computers. Take possession and protect all computers. Get technical
assistance if necessary to make a back up disk or tape in the event
something happens to the computer(s).
23 Back up Discs and Tapes. Ask if there are
back up tapes or discs and where they would be located. Take possession
24 Calendars. Look for desk calendars, computer
calendars and secretarial calendars to seek information on cases in
process and due dates.
25 Client Lists. There may be lists of clients
divided into active files and closed files. These people will have to
be notified. If there is nothing else available, a Christmas card list
or Seasons Greetings card list may provide names and addresses of both
clients and non clients for notification.
26 Closed Files. Closed files may be kept in
more than one location. Closed files may be stored in public warehouses,
the attorney's garage or basement, or in the attorney's home or even
with a client. All staff and family members should be quizzed to determine
if they know of out of office locations.
27 Examination of Closed Files. Closed files
must be examined before destruction or return to clients. The examination
of closed files ( and open files) raises questions of attorney client
confidence and possible violation of confidence. In some states only
an attorney or someone working under the direct supervision and control
of an attorney can look into the file. In other states a non attorney
spouse or relative or personal representative of the attorney's estate
may be able to examine the files. In some states the attorney for the
executor or personal representative can cause the files to be examined.
The rules concerning confidentiality vary from state to state.
28 What to look for in the closed files. Anything
which is the property of the client should be returned to the client.
Any original document should be removed from the file for return to
the client. Typical items found in files include wills, stock certificates,
original signed contracts, promissory notes, deeds, mortgages and other
items returned to the attorney's office from a county recorder or governmental
filing office. Items representing attorney work product generally are
not given to the client, but the rules as to what must be returned to
the client may vary from state to state.
29 Determine if there is a provision concerning
destruction of files in the fee agreement or on closing the file or
at any time in the file.
30 Destruction of closed files. The rules concerning
time periods for file retention and file destruction vary from state
to state and usually turn on various statutes of limitations. Some rules
are based on conversion as though one was converting the property (the
file) of the client. Some rules are based on Statutes of Limitations
of ethics rules or breach of contract or negligence claims. Determine
if the attorney had a file retention - destruction policy which had
been communicated to the clients. There may be special rules for the
files of minors. If there are no clear published rules ask for guidance
from both the malpractice carrier and the ethics authorities.
31 Physical destruction of closed files. The
safest way to destroy closed files is simply to shred them or get them
shredded. Unfortunately this can be an expensive process. Often lawyers
just dump closed files into the trash. This is a risky procedure as
the trash is handled by many people before destruction and the file
contents may be of interest to one or more of these people.
32 Selling Old Files. Depending on the price
of paper, some paper recyclers will buy old files by weight. Paper used
in law firms has high scrap value. The buyer will both buy the files
and haul them away. The files get torn apart as they move down a conveyer
belt. The paper is then sorted by type of paper and processed. I have
personally observed the processing and I believe it is extremely unlikely
that client confidences would be violated.
33 It may or may not be possible to find cheap
storage in a farm area or in a slum. Files could be put in this cheap
storage with the hope that no one will ever need them.
34 Files of unlocated clients pose a special
problem. If the applicable statutes of limitations have run and no one
has responded to notices, the files probably can be destroyed. Determine
if the deceased lawyer's jurisdiction has a place to send unclaimed
35 Client Wills. Determine if there is a court
or other depository for non returnable client wills.
36 Disposal of Law Books. Law books may have
little or no value unless they are a complete up to date set, and are
simply a disposal problem. The law school from which the deceased graduated
may accept law books as donations from their alumni.
37 Disposal of Furniture. With rare exception,
used law office equipment has relatively little vale. Offer the equipment
to the staff and give the balance to a charity that will get it and
haul it away.
38 Trust Accounts. Determine who can sign checks
on the trust account(s). Inform the bank that the account should be
frozen. Determine if a non lawyer can audit the account. Give a sense
or urgency to determine which clients are entitled to the money and
make distribution to the clients as rapidly as possible.
39 For Closed Office. Notify post office, building
management and some nearby offices. Post office forwarding will prevent
mail for, being delivered and left at an empty office. Request building
management and nearby office to collect mail, express deliveries and
anything which might be important.
40 Notice on Door. In smaller communities and
where appropriate post a notice on the door for clients who may drop
by to seek their file or status of their matter. In the notice inform
the client of when and where and with whom contact should be made. Do
not do this if you feel the notice would serve as an invitation for
a burglar or disappointed client to return and steal or vandalize the
41 Notices on Websites. Notify clients and others
as appropriate on the attorney website.
42 Telephones. If you can obtain passwords,
clear all voice mails which may contain client or other important communications.
If passwords are not available disconnect all voice mails for which
there is no password and consider using a simple answering machine instead.
43 Emails. Arrange for automatic forwarding
of all emails to a mailbox of the responsible person. It is also possible
to reject or answer all emails with a notice instructing the sender
whom to contact.
44 Email notifications to clients and others.
If a database of client emails is monitored, consider notifying clients
and others by email notifications. Bad email addresses can be quickly
spotted. It may be possible to program emails to be notified when the
email has been read.
45 Notices to courts, administrative bodies
and other public agencies. Immediately upon making arrangements for
a successor lawyer or firm notify all courts, agencies opposing counsel,
etc., of the change in representation by appropriate substitution or
other documents. Some court or agencies might require a motion to make
46 If arrangements for a successor lawyer or
firm have not been made, it may be necessary to file an appropriate
document or letter to the court to prevent a default proceeding or to
otherwise protect the client.
47 Non-client Office Files and Records. Books
of account, bank statements, paid bills, etc. can usually be trashed
after the necessary time for income tax or malpractice or other laws..
Trust account records may have a longer retention period. The length
of time necessary before destruction of internal non client office records
varies greatly for, jurisdiction to jurisdiction.
48 Keeping Files "Forever." Retiring
lawyers or successors in interest may not want to devote the time or
money to reviewing old client and office files with the attendant expenses
of contacting clients. Many lawyers just dump the files into boxes with
the file names on the outside of the box. The boxes containing the files
are then stored in a garage or basement or "add on" back yard
playhouse along with the hope that the files will never be requested.
This system seems to work although it would still seem necessary to
remove original client documents from files before doing so.
49 Delivering File to Clients. Delivering an
active file to a client or attorney may be necessary to protect the
client's interests. Some consideration must be given to photocopying
what is given for malpractice protection. Active files delivered directly
to clients must be carefully examined before delivery. Misfiled paper
relative to other clients must be recovered. A receipt for the file
must be obtained.
50 Canceling Subscriptions. Examine incoming
mail to determine what subscriptions must be canceled. Newsletters,
magazines, lawyer listings, legal supplements, yellow pages, web and
internet services, etc. must be canceled.
51 Credit card and check authorizations periodic
charges. Many publications and memberships continue unless canceled.
Monthly or other periodic charges might automatically made to a credit
card or by charges to a bank account. These must be canceled.
52 Notify bar associations, professional associations
and other organizations as appropriate. In addition to ending dues billing,
the organization may wish to notify others of the death of the member.
For example when I die, the ABA House of Delegates will read my name
in its opening memorial service.
Sale of the Practice in Whole or in Part
The rules concerning the sale of a practice in
whole or in part are new and not yet fully developed. It is my hope
that a lawyer or a lawyer's estate will someday be able to sell a law
practice in whole or in part as easily as the sale in whole or in part
of a medical practice or a dental practice or an accounting practice.
There is no valid reason why the life's work of a lawyer should become
worthless at his or her death. Client confidences can be protected.
Guidelines for Setting a Price for
a Law Practice
These guidelines are just that - guidelines.
Every practice situation is different. The urgency or lack of urgency
in buying or selling may affect the price. Hopefully, the lawyer will
have begun the process of selling the practice to another lawyer or
law firm as part of a retirement plan while there is time for give and
take negotiation with a potential buyer.
There are many different techniques used by professionals.
An appraiser hired by a seller may consciously or unconsciously use
a method designed to set a high price. Conversely, an appraiser hired
by the buyer may try for as low a price as possible. Many of the methods
used are intended for large firms, for mergers, or for a divorce court
or estate taxes rather than the real world of a lawyer or firm buying
or selling a practice.
Since few if any, lawyers regularly buy or sell practices, the lawyer
rarely has any expertise or experience in setting the price or terms
for his or her own practice. A lawyer buying or selling a law practice
is well advised to get help.
It may be helpful to examine internet listings
and descriptions of practices for sale. A visit to www.LawPracticeSales.net
or to www.SeniorLawyers.org may be helpful.
What follows is based on my personal experiences
in assisting lawyers and other professional firms. Again these are only
some of the factors to be considered.
A Multiple of Fee Income. This is my favorite
method. It is relatively simple and reflects what is really happening
in the world, but there are other methods used by professional appraisers
that are not being described in this checklist.
1. Average the fee income over the previous
5 years by category of fees. A 5 year average will hopefully balance
out the highs and lows. It is necessary to classify the type of fees.
Fee income from trusts and a safety deposit crammed full of original
wills may be much more valuable than fee income for criminal law cases
where the selling attorney personally had the skill and reputation that
caused the phone to ring.
2. Examine the sources of the clients. Do the
clients come form referrals to a specific lawyer? Do the clients come
due to the firm, the firms expertise or the expertise of a specific
lawyer in a particular area of law? Do the clients come from institutions
that are likely to continue referring clients when the selling lawyer
closes or retires? Do they come from yellow pages or the internet?
3. Examine the areas of law which are the sources
of the fees. Are they in growth areas such as mediation, arbitration
and elder law as opposed to medical malpractice or other areas which
could be likely to be capped by legislatures.
4. Determine if the selling attorney can remain
during a time period of or from 6 months to 1 year or more.
5. Determine if the support staff with knowledge
of the clients and matters will remain.
6. Look at the net income after expenses. Typically,
net income after expenses will run 40% to 50% of the income. If the
income percentage is lower, the practice may possibly not support higher
fees and may depend on high volume and turnover. If the percentage is
higher, it is possible that the lawyer is working long hard hours without
adequate support, staff or equipment.
7. Start with a figure of six times the average
monthly gross fees. Increase the multiple or decrease the multiple keeping
in mind all of the various factors. A corporate or business or probate
practice with the leaving lawyer staying on for 3 to six months to meet
and introduce clients may be worth 12 to 15 times of the monthly average.
The criminal law practice of a deceased lawyer may only be worth as
little as one or two months the average income or may have to be given
away to avoid ongoing expenses.
8. Determine if the seller is willing to guarantee
an amount of fee income from existing and previous clients and referrals.
9. Determine an appropriate adjustment to price
and terms if it should be made six months later, twelve months later
or at any time based on going over or under the guarantee income figure.
10. Return on investment, or capitalizing net
profit is another method used.
11. "Hard" assets including books,
computers, computer systems, telephone systems and office furniture
may have little or no value beyond their book vale. Liabilities on rentals
or contract payments must be taken into account. This amount is in addition
to the multiple amount.
12. "Soft" assets including cases
in process with partially earned or contingent fees must also be valued.
This amount is also in addition to the multiple amount.
13. Contingent fees based on results. It will
probably be impossible to ethically divide actual fees between a successor
lawyer and an executor or spouse or non lawyer. This is a major incentive
for a lawyer to sell before death or disability. Sometimes a system
of dividing fees on earnings can be effectuated.
Get help. This checklist will help you get started.
Get help from a lawyer and appraiser. You can't be objective enough
alone. There are several websites which can assist you in finding the
help you need. www.SeniorLawyers.org and www.LawPracticeSales.net should
be visited. Every practice and situation will be unique to the facts
of the situation. There are hundreds of possible factors which could
affect a price of a practice. There will be many expert appraisers,
accountants, lawyers and others who will find fault with what is set
forth here and who will feel they have a better system, or method, or
Other Contract Terms to be Considered
The previous 13 points deal primarily with determining
price. The following points are some of the terms which should be covered
in the agreement between the parties.
14. List of "client accounts" to be
used for determining price and price adjustment
15. Warranty that every "client account"
has a written fee agreement in the file.
16. List of assets being transferred.
17. List of assets NOT being transferred.
18. Obligations being assumed.
19. Obligations not being assumed
20. Lease status. Assumability or assignability
21. Status and treatment of deposits and prepaid
22. Basic purchase price before adjustments.
23. Definitions of "income" to be
used in determining adjustments.
24. Adjustments based on actual income from
client accounts at specific points in time.
25. Payment of purchase price. Down payment,
monthly payments, adjustments to payments, retention or hold back if
26. Covenant(s) not to compete as permitted
by law and agreed to by buyer and seller.
27. Guarantees by third parties.
28. Income not included as transfer (sub lets
29. Accounts receivable. Allocation between
buyer and seller and collection and pay over from collections. Charge
backs of uncollectible accounts.
30. Work in process. Definitions of amount to
buyer and amount to seller.
31. Notices to clients. Agreed upon wording.
32. Responsibility for closed files and destruction
of closed files.
33. Transition assistance. Compensation rates
for specific assistance.
34. Status of errors and omissions, insurances
and claims, and possible claims.
35. Identify employees who may not be selected.
Penalty for hiring employees.
36. Manner of use of name(s) of attorney names.
37. Dispute resolution. Which items are to be
resolved by mediation, arbitration, litigation.
38. Specify which person or institution is to
mediate or arbitarate disputes.
39. Consent of spouses where appropriate.
40. Review of terms by ethics attorney(s).
As indicated these are just some of the possible
terms to be included in an agreement of purchase and sale of a practice.
This list is in large part based upon my personal experiences and obviously
should be expanded or contracted as appropriate to the practice and