Transition: The Long Goodbye, Part II
A long goodbye in terms of ethical considerations was the topic of my column in the last issue of Lawyers Weekly. In this issue, we'll continue an examination of long goodbyes, but in terms of business considerations. In other words, transitioning out of a law practice will never be quick and easy because you will have a number of business matters that need your attention.
Planning
Planning is just as important in the end stage as it was when you were just beginning your practice. Develop an action plan and timetable for how to manage the practice's sale.
Finances
Inventory all assets and liabilities, including work in progress and possible contingent liabilities.
Focus special attention on collecting accounts receivable and preparing and sending bills for all work performed to date. For outstanding accounts receivable from solvent clients, review your sale agreement to determine how to handle these. If current accounts receivable are your responsibility, consider engaging a collection agency and filing a collection lawsuit. (Note: This may affect future work for the purchasing attorney.)
Depending on the sale agreement's provision for payment or assumption of debt, pay or negotiate reduction of outstanding debt with all creditors. Terminate, arrange for reduced payment, or arrange for ongoing payment with creditors, as may be appropriate.
Determine any bank obligations and deal with them by either honoring them in accordance with the loan agreement or obtaining a payment extension until a plan for transferring your practice to the purchasing attorney is fully developed.
Taxes
Determine tax-filing requirements for both federal and state tax returns. Determine the appropriateness of maintaining your business entity status for liability or tax-filing purposes.
If dissolution is selected, complete all state and tax-filing (federal and state) requirements including, for example, specific filings with the secretary of state office.
Notifications
Be aware of state statutes that require public notice of intent to transfer the business.
In addition, you must notify a variety of service providers and vendors with which you do business. For example, you should notify utilities, phone companies, and Internet service providers, and specify dates on which services should be disconnected (or transferred). You also need to notify vendors and suppliers such as West, LexisNexis, and others of your intent to terminate the ongoing relationship. Finally, you should file mail-forwarding instructions with the post office; in addition, you should arrange with the purchasing attorney for personal mail to be forwarded to you.
Office Space, Furniture, Etc.
If the purchasing attorney plans to move the practice to his existing premises, create a detailed plan for the move-out, which includes cleaning up the space and inspecting the old space with the landlord, as well as obtaining a formal, written release from all obligations connected with the space. Arrange to have office space and storage space leases terminated on a date appropriate to the timetable to be implemented under the sale agreement.
Sell, donate, or plan to move personal property such as furniture, library materials, and the like that will not be transferred to the purchaser.
For all property to be moved, solicit bids and negotiate pricing and specifics with moving company.
Insurance
Review all insurance policies, including malpractice, general liability, disability, and life insurance policies. Contact the insurance broker if a claim is to be made. Assign or terminate all insurance policies as may be appropriate.
In addition, talk to an insurance carrier about an errors and omissions “tail" policy or discuss continued coverage.
Bar Association Status
Finally, if you will not continue in practice with the purchaser, or at such time as you withdraw from your practice, consider filing for “inactive" status with your state bar association.
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