Best Practice: Law Firm Dissolution

Asked and Answered

By John W. Olmstead, MBA, Ph.D, CMC

Q. Our firm has recently gone through a series of partner defections - we were a 40 attorney firm - now we are 10. In our last partnership meeting we had some discussions about the possibility of dissolving the firm. If this comes to pass - do you have any tips or suggestions regarding winding down the firm?

A. Winding down a firm is like starting a firm but in reverse, harder, and has more steps. Sort of like building a house and then later tearing it down. You will have to deal with:

1. Clients (notification, termination of representation, and disposition of case files)
2. Retired partners
3. Current partners
4. Employees (associates and staff) - job placement, severance, etc.

Unlike other businesses - the major asset of a law firm are its clients, employees, and partners - many of which may have already defected or walked out the door. You may be left with only the liabilities.

One of your priorities will be to decide who will manage the winddown and who will manage internal and external communications. Then you will need to develop a project management plan and dissolution/winddown plan/checklist. Major priorities will include:

1. Bank Loans
2. Building Lease
3. Retainer Obligations to Clients
4. Equipment Leases
5. Retirement and Other Payouts to Former Partners

Firm should consider if it will retain a caretaker or trustee to manage the winddown.

You should make sure that you review the ethical requirements with your state bar association concerning:

1. Clients right to choose legal counsel.
2. Notice to clients
3. Proper and continuous handling of a client's matters
4. Protecting a client's interest
5. Disposition of client files
6. Conflict of interest due to any new affiliations

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John W. Olmstead, MBA, Ph.D, CMC,(www.olmsteadassoc.com) is a past chair and member of the ISBA Standing Committee on Law Office Management and Economics. For more information on law office management please direct questions to the ISBA listserver, which John and other committee members review, or view archived copies of The Bottom Line Newsletters. Contact John at jolmstead@olmsteadassoc.com.