{"id":83726,"date":"2021-05-06t20:00:59","date_gmt":"2021-05-07t00:00:59","guid":{"rendered":"\/\/www.g005e.com\/?p=83726"},"modified":"2022-12-22t00:43:23","modified_gmt":"2022-12-22t05:43:23","slug":"how-to-enforce-the-partner-agreement","status":"publish","type":"post","link":"\/\/www.g005e.com\/2021\/05\/06\/how-to-enforce-the-partner-agreement\/","title":{"rendered":"how to enforce the partner agreement"},"content":{"rendered":"

\"senior<\/a>partners should be allowed to work past mandatory retirement age only if they continue adding value to the firm. also: six agreement provisions that often are outdated.<\/strong><\/p>\n

by marc rosenberg<\/i>
\nthe role of the managing partner<\/i><\/a><\/p>\n

when the managing partner\u2019s job is discussed, their role in the firm\u2019s partner agreement is rarely mentioned. perhaps in the overall scheme of things, it\u2019s not as important as revenue growth, profitability and staff development, among many others. but it\u2019s still critically important.<\/p>\n

more: <\/b>how long should it take to make partner?<\/a> | how a good managing partner impacts profitability<\/a> | how a great managing partner impacts firm growth<\/a> | compensation is no way to manage partners<\/a> | clarify partner expectations<\/a> | exceptional managing partners offer their advice<\/a>
\n\"goprocpa.com\"exclusively for pro members. <\/span><\/strong>log in here<\/a> or 2022世界杯足球排名 today<\/a>.<\/span><\/p><\/blockquote>\n

if there is one person in the firm responsible for safeguarding the firm\u2019s assets \u2013 its clients, people, proprietary data and practices, reputation and value \u2013 it\u2019s the managing partner. and the most important way he or she does that is by enforcing a solid partner agreement.
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\nbefore we proceed, a note about terminology: this post uses the term \u201cpartner agreement\u201d to describe the agreement for all legal entities, including c-corp, sub-s, partnership, llc and llp.<\/p>\n

main governance issues partner agreements address<\/strong><\/p>\n

every firm is different, but these are the most critical firm governance issues addressed in partner agreements:<\/p>\n

    \n
  1. authorities of the managing partner and governing bodies such as the executive and compensation committees<\/li>\n
  2. voting<\/li>\n
  3. rights, responsibilities, limitations and duties of the partners<\/li>\n
  4. financial considerations such as partner income allocation, ownership percentage and capital<\/li>\n
  5. how disputes are settled, including grounds for expulsion of a partner<\/li>\n
  6. partner buyout<\/li>\n
  7. how the firm admits new partners<\/li>\n
  8. limitations on departing partners’ ability to take clients and staff with them if they leave the firm (noncompete and nonsolicitation agreements)<\/li>\n<\/ol>\n

    without these protections, the firm is at risk of having these issues decided in ways that are antagonistic, harmful and unfair to the firm and its owners. it\u2019s the managing partner\u2019s job to enforce the agreement and protect the firm and its partners from harm.<\/p>\n

    an overarching perspective on the managing partner\u2019s authorities<\/strong><\/p>\n

    tony kendall is the managing partner of mitchell titus, a large firm with offices in six major cities. he succeeded the firm\u2019s revered founder in 2009. after several months on the job, he saw that his partners\u2019 view of the managing partner\u2019s job had to change. he told his fellow partners:<\/p>\n

    \u201ci can\u2019t manage this firm if i have to take a vote every time i want to make a decision.\u201d<\/p>\n

    the managing partner section of your partner agreement should be written with that simple yet powerful governance technique in mind.<\/p>\n

    managing partner authorities commonly found in agreements<\/strong><\/p>\n

    this preamble often precedes a list of specific managing partner duties:<\/p>\n

    the managing partner shall have general and active control of the management and business affairs of the firm on a day-to-day basis. the managing partner shall exercise general supervision and administration over all of the firm\u2019s affairs, with the exception of those issues stipulated elsewhere in the agreement that require a vote of the full partner group. the managing partner has the power to make all contracts on behalf of the firm in its regular and ordinary course of business and shall see that all resolutions and matters approved by the partners are carried out.<\/p>\n

    these are common authorities granted to the managing partner in partner agreements. as with items in the managing partner\u2019s job description, the managing partner is free to delegate any of these to other firm members:<\/p>\n

      \n
    1. be responsible for the management duties and powers normally exercised by the ceo of a business<\/li>\n
    2. have the right to delegate authority to others from time to time and recall the authority so delegated<\/li>\n
    3. resolve questions and issues relating to ethics and professional standards<\/li>\n
    4. determine the types of services provided by the firm<\/li>\n
    5. hire and fire all employees, other than partners, and recommend compensation for employees<\/li>\n
    6. create, adopt, enforce and supervise operating procedures, policies and processes for the firm<\/li>\n
    7. pay all expenses and debts as they become due<\/li>\n
    8. automatically serve on the firm\u2019s compensation and executive committees; at virtually all firms, the managing partner chairs these bodies<\/li>\n
    9. approve all admissions of partners (note: this is in addition to<\/strong> a vote by the full partner group)<\/li>\n
    10. manage and administer the firm\u2019s partner retirement system<\/li>\n
    11. initiate preliminary, no-obligation discussions with merger candidates<\/li>\n<\/ol>\n

      keeping the partner agreement current<\/strong><\/p>\n

      over time, provisions of partner agreements become outdated because of changes in the size of the firm and new governance practices that emerge from time to time. it\u2019s the managing partner’s job to keep current on these potential reasons for changing the agreement. here are major examples of outdated or poorly written partner agreement sections that i find with alarming frequency.<\/p>\n

        \n
      1. voting.<\/strong> perhaps when the firm was formed, there were only five or fewer partners. the agreement provided for voting to be done on a unanimous or a heavy supermajority basis (say, 80 percent). but as the firm increases in size, it is no longer workable to use such a high threshold to pass certain issues. in these cases, it becomes reasonable to require a smaller supermajority (perhaps two-thirds) or a simple majority vote to pass certain measures.<\/li>\n
      2. buyouts.<\/strong> over the past 10 to 15 years, firms have tightened up the conditions and rules regarding partner buyouts. for example, instead of a buyout being virtually automatic, partners are now required to provide ample notice (usually 18 to 24 months) and proactive client transition assistance.<\/li>\n
      3. what ownership percentage means. <\/strong>when firms are small, partner agreements are often written to use ownership percentage to decide five significant financial and operating privileges for partners (listed below). the common concern of all five areas is this: ownership percentage is almost never a fair indicator of what the partners have done to earn<\/strong> the benefit. therefore, ownership percentage should not be used to determine these individual benefits or privileges.<\/li>\n<\/ol>\n

         <\/p>\n

        impact of ownership percentage on partner agreements<\/strong><\/p>\n\n\n\n\n\n\n\n\n
        area of impact<\/strong><\/td>\nmisguided use of <\/strong>owner %; <\/strong>usually found in smaller firm agreements<\/strong><\/td>\nhow the area <\/strong>should be handled<\/strong><\/td>\n<\/tr>\n
        new partner buy-in<\/td>\n100% on owner percentage times the firm\u2019s value<\/td>\nthe firm should decide on a statutory buy-in amount independent of ownership percentage; $50,000 to $150,000 is common, depending on firm size<\/td>\n<\/tr>\n
        partner compensation<\/td>\nbiggest factor in allocating income or a major factor<\/td>\nincome should be allocated based on relative partner performance; some firms have a small income tier based on each partner’s capital in the firm<\/td>\n<\/tr>\n
        partner retirement\/ buyout<\/td>\nbiggest factor in calculating buyout or a major factor<\/td>\nbenefits should be determined based on what the departing partner contributed to create the firm’s value and overall success<\/td>\n<\/tr>\n
        distribution of proceeds of a firm sale<\/td>\n100% on owner percentage<\/td>\nshould be the same as relative, accrued retirement benefits.<\/td>\n<\/tr>\n
        voting<\/td>\n100% on owner percentage<\/td>\n1. very few votes should be taken.<\/p>\n

        2. most votes are 1 person, 1 vote.<\/p>\n

        3. crucial issues (e.g., mergers and partner admissions) should be voted on a supermajority basis.<\/p>\n

         <\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

        \u00a0<\/strong><\/p>\n

          \n
        1. retirement\/buyout provisions.<\/strong>\n