Private Business Counsel

Effective this week, a change in the Pennsylvania Rules of Professional Conduct will have a major effect on succession planning for lawyers.

Under the old rule, an attorney who wanted to sell his or her practice was required to sell the entire law practice to a single lawyer or firm and to completely terminate the private practice of law in Pennsylvania. The old rule created vexing problems for lawyers who were trying to wind down their practice or to change practice areas. Take, for example, a lawyer who does personal injury work and real estate. Most typical buyers would not be interested in two such different practice areas, so it would be difficult to sell them all together.

Now, a lawyer who sells a practice area must retire only from practicing that area of law in Pennsylvania. In addition, the new rule allows the selling attorney to assist the purchaser during the changeover of active client matters. The new rule is generally consistent with the American Bar Association Model Rule 1.17.

The new rule is welcome news, but a selling attorney will still need to consider income tax and estate tax issues when planning a sale, as well as other issues relating to the sale of a business. For example, the parties will want to plan the allocation of the purchase price for the practice so that the selling attorney can treat part of the proceeds as capital gain. Similarly, the selling attorney will want to the sale to be consistent with his or her estate planning goals. Finally, both parties will want to consider the treatment of liabilities.