Yesterday, I blogged about succession planning for sole practitioners.  Today, I will blog about succession planning for private practice lawyers operating as a partner in a limited liability partnership held personally or through their own professional corporation or as a shareholder under a professional corporation. 

Practicing under a Partnership

Typically, at the start of every partnership, a Partnership Agreement should be entered into to govern the partnership relationship.  The Partnership Agreement should also include clauses outlining what happens when a partner becomes absent from practice.  As previously mentioned, absence can occur by disability, incapacity, abandonment, or death.  The Partnership Agreement should include clauses governing matters such as: (1) the timing of repaying the partner’s interest in unbilled disbursements and work in progress and the partner’s capital account including its pro rata interest, (2) disability and/or life insurance, and (3) the continued use of the partner’s name. 

If the licensee enters the Partnership via their personal Professional Corporation, then the licensee should prepare a separate Will or include clauses in their Last Will and Testament that addresses the handling of their Professional Corporation by a Replacement Lawyer.  Professional Corporations are subject to additional requirements mandated by the Law Society of Ontario, including By-Law 7 regarding the Professional Corporation’s Certificate of Authorization which must be handled by a lawyer practicing law in Ontario.

Practicing as a Shareholder of a Professional Corporation  

When a legal services business operates as a professional corporation then the shareholders should enter into a Shareholders’ Agreement to govern their shareholders relationship and outline the clauses when a shareholder becomes absent from practice.  The Shareholders’ Agreement should include clauses similar to those as mentioned above for a Partnership Agreement.  Similar to a Partnership Agreement addressing a partner’s capital account, a Shareholders’ Agreement should address a shareholder’s shareholder loan account and the terms of payment.  The Shareholders’ Agreement should also address what would happen to the shareholder’s shares when that shareholder becomes absent, specifically, if the shares are redeemed or purchased for cancellation and at what value.

The Law Society of Ontario outlines more details with respect to preparing for the death or disability of a Law Partner or Shareholder in this link.

Thanks for reading.

Jennifer Wan