CPA Firm Partner Agreement Essentials

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Does Your Partner Agreement Pass the Sniff Test?

• Does your partner agreement protect your firm from disputes among partners? If not, the courts may intervene in ways you won’t like.
• Dozens of innovations have been developed for partner agreements in recent years. Is your agreement current or is it older than dirt?
• As firms move to more of a corporate governance structure, does your agreement make it clear who has the authority to make decisions?
• As firms merge with other firms and bring in new partners, do you have a partnership agreement you are proud to give to potential new partners?
• Does your partner agreement address hot issues such as the legality of mandatory retirement and the increasing popularity of the non-equity partner position?
• Thirty percent of CPA firms don’t even have a partner agreement. Are you one of them?

Marc Rosenberg, CPA, has assisted hundreds of firms for over 20 years with their partner agreements.  Finally, he has incorporated the hundreds of best practices he has shared with his CPA firm clients in one, concise, easy to use this handbook.  Marc walks you through every major section of a properly written partner agreement – IN PLAIN ENGLISH – including:

• New partner buy-in
• Voting
• Partner retirement/buyout
• Duties of the managing partner and executive committee
• Non-solicitation covenant
• Mandatory partner retirement
• Partner duties and prohibitions
• Non-equity partners
• Issues germane to mergers
• Death and disability
• Social media’s impact

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ABOUT THE AUTHOR

MARC ROSENBERG, CPA

CPA Trendlines commentator Marc Rosenberg is a nationally known consultant, author, and speaker on CPA firm management, strategy and partner issues. President of his own Chicago-based consulting firm, The Rosenberg Associates, he is the founder of the most authoritative annual survey of mid-sized CPA firm performance statistics in the country, The Rosenberg National MAP Survey, also available here from the CPA Trendlines Store. He has consulted with more than 700 firms throughout his 20-plus year consulting career. Accounting Today magazine annually acknowledges Marc Rosenberg as one of the 100 most influential people in the CPA profession and INSIDE Public Accounting has repeatedly recognized him as one of the ten most recommended CPA firm consultants in the country.

To see more of his work for CPA Trendlines, click here.

See the complete Rosenberg Practice Management Collection Marc Rosenberg here.

SAMPLE CONTENTS

Defining the Why, What, When and How of Partner Agreements

• Protecting Your Business
• The Partner Agreement’s Role in Overall Firm Management
• Why Some Firms Don’t Have a Partner Agreement – The Excuses

Partner Retirement/Buyout Plans:

• Crash Course on CPA Firm Partner Retirement/Buyout Plans
• Three Main Issues for the Partners to Decide
• Industry Norms for Goodwill Valuation
• Partner Retirement/Buyout: 25 Main Provisions
• Capital & Goodwill

The Name of the Firm

• Sample Language for Your Partner Agreement
• Ownership Percentages and Capital Accounts
• The Potential Damage of the Term “Ownership Percentage”
• The Folly of Using Ownership Percentages to Govern Firm Decision
• What Role Should Ownership Percentage Play?
• The Role of Ownership Percentage

New Partner Buy-In

• Summary of Key Provisions
• Why Firms Require a New Partner Buy-In
• What Exactly Is the Firm’s Value?
• The Current Logic and Philosophy Behind Determining the New Partner Buy-in
• Terms of the Buy-In
• Other Terms of the New Partner Buy-in
• Give New Partners Plenty of Notice of the Firm’s Non-Compete and Non-Solicitation Covenants
• Summary of Key Provisions to New Partner Buy-In Plan

Voting

• Rights and Rules
• Why Most Firms Rarely Vote
• Important Exceptions to “Partners Rarely Vote”
• Do Non-Equity Partners Have a Vote?
• When Votes Must Be Taken, What Are the Options?
• Voting Decision Grid
• Deciding on the Supermajority Percentage
• How To Set the Supermajority Percentage

Death and Disability

• Accelerated Vesting
• Accelerated Payment Schedules
• Death of a Partner
• Life insurance
• Compensation of the Deceased Partner
• Notice and Client Transitions

Disability of a Partner

• Two Types of Disability
• Disability Insurance
• Notice and Client Transitions
• Best Practices in CPA Firm Partner Disability

The Managing Partner in Partnership Agreements

• The Managing Partner Who Had to Go
• Key Provisions in the Managing Partner Agreement

Executive Committee Essentials

• The Three Stages of Firm Governance
• Firm Startup
• When Democracy Works
• Lack of a COO
• Lack of Accountability
• When Management Gets Serious
• When the Firm Decides It Needs a CEO

Management at Smaller Firms

• Why Even Small Firms Need an Executive Committee
• Management Committee vs. Executive Committee
• Why Term Limits Don’t Work

Non-Compete & Non-Solicitation Agreements

• Two Groups of Personnel for Purposes of Non-Competes
• Why CPA Firms Have Non-Competes
• Non-Competes: State vs. Federal Law
• Two Different but Related Terms
• Non-Compete Agreements
• Non-Solicitation Agreements
• Taking Clients and Staff
• One Times Fees for Violations
• Damages for Taking Staff
• Enforceability of Non-Competes
• Sample Non-Solicitation Agreement
• Confidential and Unique Knowledge Afforded by Being a Partner of the Firm
• Prohibitions
• Penalties for Violations
• Forfeiture of Deferred Compensation
• Withholding Capital
• Attorneys’ Fees

Non-Equity Partners

• Why Have Non-Equity Partners?
• Sample Language for Your Non-Equity Partner Agreement

Non-CPA Partners and Principals

• Key Issues in Principal Agreements
• Sample Language for Your Non-Equity Partner Agreement

Partner Compensation and Income Allocation

• Partner Vote or Executive Committee?
• Compensation Committee
• Decisions that Need to be Made
• Partner Income Allocations

 Duties, Prohibitions, Expulsions

• Items that Are Clearly Partner Duties
• Prohibitions and Restrictions
• Grounds for Expulsion
• Bad Acts
• Performance Issues
• What an Expelled Partner Loses
• ‘Partners Will Devote all of Their Time and Attention to the Firm: What It Really Means

Partners Investing in Clients

• Sample Language for Your Partner Agreement

Mandatory Retirement

• How CPA Firms Have Changed Webster’s Definition of Retirement
• What Mandatory Retirement Really Means at Most Firms
• The Danger of Not Having A Mandatory Retirement Policy: Lesson Learned
• Two Opposing Views on Mandatory Retirement
• Is Mandatory Retirement Legal?
• The AICPA Chimes In
• What It Means for CPA Firms
• Mandatory Retirement: Sample Language for Your Partner Agreement

 Agreement Issues Affecting Women

• Areas Where Partner Agreements May Discriminate against Women

 Other Provisions

• When Partners Withdraw or Retire, Does it End their Liability to the Firm?
• Physical Exams.
• If the Firm Is Sold, How Are the Sales Proceeds Distributed?
• Clawbacks
• Should Partners Be Required to Submit their 1040s to the MP?
• Social Media
• Part-Time Partners
• Practice Continuation Agreements

Partner Agreement Issues in Mergers

• Partner Agreements vs. Merger Agreements
• Provisions in the Buyer’s Partner Agreement that May Be a Problem for Sellers
• Sellers: Don’t Get Hung Up on Titles
• Merger Agreement Provisions That Can Affect Partner Agreement Issues

Sole Practitioners Bringing in New Partners

• New Partner Non-Negotiables
• Partner Agreement
• Buyout Agreement
• Compensating the New Partner
• Getting a New Partner to Perform Like a Partner
• Name of the Firm
• Equity vs. Non-Equity Partner

Common Weaknesses and Omissions in Partner Agreements

Summary of Provisions and Common Ways to Handle Them 

ADDITIONAL CONTRIBUTORS and CONSULTING EXPERTS:

• 

  Peter Fontaine, a CPA Trendlines expert author, is the founder and managing partner of NewGate Law. Before launching NewGate in 2012, he was the general counsel at McGladrey and assistant general counsel at Arthur Andersen. Peter works exclusively with CPA firms. He is also a contributor to the CPA Trendlines publication Making Mergers Work: Special Report [eBook]. He can be reached at pfontaine [at] newgatelaw.com.

• Russell Shapiro is a partner in the Chicago law firm of Levenfeld Pearlstein. Accounting Today named him one of the Top 100 Most Influential People in Accounting. Russell works extensively with CPA firms, especially in mergers and partnership agreement issues. He can be reached at rshapiro [at] lplegal.com.

• Frank Saibert is a partner in the Chicago law firm of Nixon Peabody. He focuses on labor law, which includes the area of non-compete agreements. Frank is a long time presenter at our Chicago area roundtable groups. He can be reached at fjsaibert [at] nixonpeabody.com.

CAUTION:  This book is not a template for writing your own agreement.  Instead, it guides you through the process of ensuring that hundreds of firm governance essentials are addressed in your agreement.  Only attorneys experienced with CPA firms should write a CPA firm partner agreement.

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