Law Firm for Sale

Can you sell your law firm?  Will anybody buy it?  How do you get the highest price?

In previous columns, we have explored various ways to exit a law practice.  We have discussed the possibility of a firm merger, internal succession, and plain retirement.   Now, in addition to these traditional pathways to exit, there is a growing trend of selling a firm.

New York Rule of Professional Conduct 1.17(a) provides: “A lawyer retiring from a private practice of law . . . may sell a law practice, including goodwill, to one or more lawyers or law firms, who may purchase the practice . .  .”

This was not always the case.  “Standards governing the sale of law practices are of comparatively recent origin. Before . . .  1996 . . .  a lawyer in New York could not sell a law practice. See EC 4-6 (as in effect prior to 1996); N.Y. State 707 (1998). . . . ”  NYSBA Ethics Committee Opinion 1168 (5/13/2019).

In conjunction with this evolution in the ethical rules, other industry changes also make selling a law practice more realistic.

There is a budding effort by various companies to help facilitate law firm sales.  Some are trying to build a sort of multiple listing service of law firms for sale, or to otherwise facilitate law firm exits.  Examples can be found at thelawpracticeexchange.com/marketplace or www.seniorattorneymatch.com.

There is also a trend toward permitting non-lawyer firm ownership.  This change would enhance the ability to sell a law practice as it would widen the pool of potential buyers to other entities such as private equity firms. Non-lawyer firm ownership is already permissible in Arizona, Washington D.C. and Utah and may eventually spread across the country.

Even with these widening sale channels, though, selling a law practice and getting the highest price at sale will largely depend on how the firm will operate after the owner exits.  Will the clients stay with the firm?  Can the firm continue to draw new clients?  Is there a team in place to carry on the work? Are there operating systems and procedures that ensure consistency? In short, can the firm continue to operate and grow without the selling attorney?

With these questions, it behooves an attorney who is eventually planning to try to sell (or, perhaps, exit at all) to structure their practice long beforehand in a way that ensures that the practice can carry on without them.  That means, right now, building transferable client relationships, establishing brand value, hiring a team, and setting up operating systems.  There are many benefits to putting these things in place now. Not only does it make a practice more saleable, but it also makes the practice easier to operate and more profitable, well before exit.  Some of these steps may seem daunting or foreign so we will delve into them in coming articles.  With a bit of understanding and effort, we can all put some of these pieces in place long before we actually exit.