Selling a law practice in Ohio is now legal
The Ohio Bar adopted a new rule of professional conduct, Rule 1.17, that allows the sale of a law practice as of February 1, 2007.
There are a number of differences between the new Ohio rule and the modified ABA rule. Simply stated, the ABA rule allows the "… purchase (of) a law practice, or an area of law practice, including good will …"
Ohio deals with issues that the ABA rule subsumes or believes is not important.
For example, Ohio is concerned that a lawyer may buy a practice in order to resell it. The rule prohibits this. I’m not sure what Ohio was concerned about; I’ve never seen one lawyer buy a practice with the intent to "flip" it. A law practice is not a piece of real estate that one can hold for a short time and have economic appreciation increase the value sufficient to justify the added expense of another transaction. In order to increase the value of a law practice, a lawyer must add to the revenue and the profitability of the law practice. There is no time factor set in the Ohio rule, so I’m not sure what the factors are that they will consider in evaluating whether a future sale violates this provision.
The ABA rule allows certain disclosures in the sale negotiation without violating confidentiality. The Ohio rule appears to be more stringent until and unless a confidentiality agreement is signed by the purchasing attorney.
The ABA rule does not make reference to covenants not to compete; this is left to State laws. The Ohio rule states that a purchase agreement may include a reasonable covenant not to compete.
Whatever the differences are between the Ohio rule and the ABA rule, at least Ohio now has a rule. I believe "simple is better" in this circumstance. But, a rule permitting the sale is better than either no rule or a rule prohibiting the sale!Tags: Buying & Selling a Practice, Cash Flow, Management