Checklist for Closing or Selling
a Law Practice
© Copyright Jay Foonberg, 2002,
Closing A Law Practice
Why This Checklist Has
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 get help.
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 Practice
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 practice.
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 for
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 school debt.)
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 are
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 logical
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, etc.
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 Numbers.
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 attorney.
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 of
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 files.
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
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 office.
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
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
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
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 the change.
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
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
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
8. Determine if the seller is willing to
guarantee an amount of fee income from existing and previous clients and
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
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 formula.
Other Contract Terms to be
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 any.
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 attorneys