Can an incoming partner pay the existing partners more than the firm's physical assets are worth, and then share in fees the firm collects after admission for work done before it?
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This page answers the general question as of 1981. Ezel answers yours: whether it's allowed on your facts, under the current Illinois Rules of Professional Conduct, with citations.
Plain-English summary
Partners A and B agreed to admit new partner C for $95,000 (with a down payment and a ten-year note), in exchange for which C would receive twenty percent of net profits. The firm's physical assets were worth $45,000; the remaining $50,000 was allocated to good will and the right to a profit share, including fees on existing files. The inquiry asked whether the partners could properly take more than the assets' value and allocate the excess to good will and future fees on existing files.
The committee acknowledged the line of opinions holding that a lawyer's practice and good will are not assets that may be sold (ISBA Opinions 124, 231, 239, and 310; ABA Formal Opinion 226). It concluded, however, that admitting a new partner under an agreement calling for a payment to the existing partners is not a sale of a law practice or any part of it, and that this remains true whether or not the payment exceeds the physical assets' value and whether or not part of it is allocated to good will and work in progress.
On the second issue, the committee read Rule 2-107 (division of fees among lawyers) as not applying to fee division with a partner or associate of the same firm. It therefore concluded it is proper for a newly admitted partner to share in fees the partnership receives after his admission for work performed before it.
Currency note
This opinion was issued in 1981, under the former Illinois Code of Professional Responsibility and before Illinois adopted the 2010 Rules of Professional Conduct. The ISBA Board of Governors affirmed the opinion in January 2010 as generally consistent with the 2010 Rule (Rule 1.5), while cautioning that the specific standards referenced may differ from the 2010 Rules. Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule or requirement mentioned here.
Common questions
Q: Is a new partner's buy-in above the firm's asset value an improper sale of a law practice?
A: The opinion concluded no; admitting a partner under an agreement to pay the existing partners is not a sale of a practice, even where the payment exceeds the physical assets and is partly allocated to good will and work in progress.
Q: Can a newly admitted partner share fees collected for work done before he joined?
A: Per the opinion, yes; Rule 2-107's limits on dividing fees among lawyers do not apply to division with a partner or associate of the same firm.
Q: Does the rule against selling good will block this arrangement?
A: The committee distinguished the sale-of-practice opinions, holding that a partnership admission paid for by the incoming partner is not a sale of the practice or its good will.
Background and rules framework
The opinion applied Illinois Code of Professional Responsibility Rule 2-107 (division of fees among lawyers), reading it not to reach fee division among partners or associates of the same firm, and distinguished prior opinions barring the sale of a lawyer's practice and good will. The Board's 2010 affirmation maps the analysis to current Illinois Rule of Professional Conduct 1.5 (fees, including division of fees), corresponding to ABA Model Rule 1.5; the sale-of-practice question it distinguishes is now addressed by ABA Model Rule 1.17.
Citations and references
Rules of Professional Conduct:
- Illinois Code Rule 2-107 (applied in the opinion)
- Illinois RPC 1.5 (2010 equivalent per the Board's affirmation)
- MR 1.5 (fees and division of fees); MR 1.17 (sale of a law practice, the question distinguished)
Other opinions cited:
- ISBA Opinions 124, 231, 239, 310: a lawyer's practice and good will are not assets that may be sold
- ABA Formal Opinion 226: sale of a law practice and good will
See also
- ISBA Ethics Op. 776: Independent Lawyers Providing Work to a Firm
- ISBA Ethics Op. 840: Network of Affiliated Law Firms
- ISBA Ethics Op. 768: In-House Lawyer's Salary as a Fee
Source
- Landing page: https://www.isba.org/ethics/opinions/725
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