Why A Written Partnership Agreement is So Important to Your Practice

April 7, 2021
By: Matthew Laurin

Toni Y. Long

Toni Y. Long is the Managing Partner and Founder of The Long Law Group, PC. She specializes in corporate and entertainment transactional work with a focus on corporate governance, maintenance and formation, and asset/stock purchases and sales. Toni works with a spectrum of clients, ranging from sole proprietors and emerging businesses, to nonprofits and mid-market companies.

Before founding The Long Law Group, PC, Toni worked as a corporate attorney, was the Director of Business and Legal Affairs for an international film distribution company, and served as a litigation associate at Morgan, Lewis & Bockius and Zevnik Horton. Toni has been recognized as a “Top Attorney” for Corporate Law by Pasadena Magazine and a Southern California “Rising Star” by Super Lawyers in Los Angeles Magazine.

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Here’s a glimpse of what you’ll learn:

  • Toni Y. Long talks about The Long Law Group’s practice.
  • What is a partnership agreement, and why should your business have one?
  • Toni shares what can happen when you don’t create a partnership agreement.
  • Agreements for minority owners and majority owners.
  • What should you always have in a partnership agreement?
  • Toni’s advice for attorneys who are thinking of starting a law firm together.

In this episode…

If you’re thinking about starting a business with someone else, there are certain things you need to consider. According to Toni Y. Long, one of the most important aspects of a partnership is your agreement. So, what exactly goes into a partnership agreement—and why is it so important?

With 20 years of experience in the business of law, Toni has witnessed plenty of companies lose time and money over the absence of a partnership agreement. Toni advises that every company should have an agreement—even if you think you don’t need it. A partnership agreement is advanced planning for you and your business, and it will help you efficiently work through obstacles and disagreements when they arise.

In this episode of the Esq.Marketing Podcast, Matthew Laurin talks with Toni Y. Long, Managing Partner and Founder of The Long Law Group, PC, about the importance of partnership agreements. Toni shares what exactly goes into partnership agreements, how they can help your business, and what you should look for in a partner. Stay tuned.

Resources Mentioned in this episode

Sponsor for this episode…

This episode is brought to you by Esq Marketing, your firm’s strategic search marketing partner. Esq Marketing helps law firms generate more clients and cases using search marketing and helping them land on the first page on Google so that clients can find you right away. We help companies ranging from those with 10 or less members to those with over 50 in their team, essentially creating a marketing department for them to help them reach potential clients with ease.

Episode Transcript

Intro 0:04

you’re listening to the Esq.Marketing Podcast hosted by Matthew Laurin president of Esq.Marketing where he features successful solo and smb law firms from all over the united states now let’s get started with the show

Matthew Laurin 0:22

hello everyone I’m Matthew Laurin, president of Esq.Marketing and you’re listening to the Esq.Marketing Podcast where I share successful stories to help let me start that over hello everyone i’m Matthew Laurin president of Esq.Marketing and you’re listening to the Esq.Marketing Podcast where we share successful stories to help build your practice today we’re joined by Toni Long. Toni is the managing partner and founder of The Long Law Group which specializes in corporate and entertainment transactional work since founding the firm Toni has collaborated with other attorneys and counselled clients on complex m&a and financing transactions totaling more than $400 million Toni welcome to the show um I know that was sort of a super quick intro and I know there’s a lot more to what you do and I was hoping maybe that you could you could share a little bit more with us you know straight from you as opposed to me reading it

Toni Y. Long 1:13

yeah no worries no worries so that’s what you said is is is absolutely correct i’m the managing partner and founder of The Long Law Group my specialty is corporate and entertainment transactional work but our firm is has grown over the years and we also have a labour and employment practice as well as a civil litigation practice basically we are or we see ourselves as kind of a one stop shop for business owners and addressing any issues that come up through the lifecycle of a business so that includes especially here in california if you own a business you’re always going to have labour and employment issues so we try and advise our clients on those and sometimes litigation is one of those things that happens you can’t really control it so we’re there to represent our clients should their interests are protected there as well

Matthew Laurin 2:07

so it’s really interesting I know when our director of marketing James first told me that you were in entertainment law is it I was like ooh that sounds

Matthew Laurin 2:15

that sounds really interesting like I just picture you working with like entertainers and

Toni Y. Long 2:21

that’s what people always think I think people think entertainment is a lot sexier than it actually is in practice there’s a lot of there’s very little of that that’s probably a very small percentage of anyone’s entertainment practice generally speaking and then there’s a whole bunch of contracts labour and employment issues and other areas of the law that get implicated in entertainment because there’s really no entertainment law per se it’s just an umbrella term that encompasses all manner of other practice areas that come together and impacts this one industry

Matthew Laurin 2:57

still no I don’t have to feel like such a moron when I talk to people about it alright so let’s jump right in here today’s topic is about partnership agreements why you need them and what should absolutely be included in any partnership agreement and for myself working with attorneys I guess this is just always something I thought attorneys just knew about it no matter what the practice area was up but what is a partnership agreement

Toni Y. Long 3:23

basically a partnership agreement is just a legal agreement between owners of a law firm or any business really that will explicitly detail their relationship it says for what I call the rules of engagement for running the business for bringing on new partners for dividing profits and losses for handling disagreements you know believe it or not sometimes lawyers disagree for disposing of an interest in that partnership if a partner dies is disabled gets a divorce or retires and so those are really the major things that any partnership agreement should address and that’s it in in a nutshell so we’re done goodbye

Matthew Laurin 4:16

so why would business owners get a partnership agreement like what are some of the main reasons to do that well

Toni Y. Long 4:27

ideally you want an agreement that is tailor made to your partnership that’s tailor made to the way you’re going to run your business not every business is run the same way not everybody has the same you know experience responsibilities and what have you and so you want something in writing that memorializes the agreement that you and your partners have agreed to as to how the law firm is going to be run so if you don’t have something in writing The state has a plan for you. They have default rules. And oftentimes you think about default rules. Default rules are generally in place, kind of as a catch all in, in written in very general terms, because they can’t identify every particular scenario. So they tend to be very basic and not really tailored to what is happening in the real world. So you want to have something in writing in the event that you want to deviate from those default rules. And almost in every instance, people do want to deviate once they realise what the default rules are. So that’s one reason to have a partnership agreement. You want to have some control over who owns your company, you want to agree on certain issues in advance before they become disputes, you know, who’s going to make what decisions? Who’s going to run this committee or that committee in the in the partnership or in the law firm? That sort of thing? What happens if you have a disruptive partner or non performing partner? How do you remove them from the company, you want to address that, and you don’t want it to be a process that’s so long and drawn out that it could kill your law firm? It could, you know, take your business. So those are some of the key reasons I would say you would have that. And also, law firms are long term investments for people, you know, in this day and age, it’s certainly not that expensive to start a law firm like it was, you know, 30 or 40 years ago. And we’ve certainly learned in the past year, that you can run many businesses from home, rather seamlessly, or at least with very few bumps in law firms are the same in that regard. But you will want something that protects your investment in that business. Again, going back to certain actions that could imperil the business. That’s money that gets lost if that were to happen if that business were to tank because you didn’t plan in advance. So the partnership agreement is your advanced planning on in taking care of issues in the event that things don’t go as planned, and in life generally does not go as planned.

Matthew Laurin 7:30

That’s for sure. The first thing you said caught caught my attention. I didn’t know there was default rules that dictate what happens if there’s a disagreement? What are some of those?

Toni Y. Long 7:44

You know, what I don’t know if I know the default rules off the top of my head, but they are certainly codified in our in our statutes that govern professional corporations. So if you don’t have rules for, you know, bringing in someone or getting rid of a partner, you may be stuck with whatever the default rules are, and they may not move as quickly or as efficiently as you as you want. I’ll be honest, I don’t know all of the default rules, mainly, because with my clients, we tend to vary those rules almost in every instance. Because people want something that’s tailor made for them. But yeah,

Matthew Laurin 8:26

today those vary by state or is there?

Toni Y. Long 8:29

Yes, yes, they will vary by state. So if you’re in California, we have one set of rules, if you’re an Illinois, there’s another set Texas another set. And that’s not to say that they are all different in every state, you know, some states, you know, will follow certain kind of model rules and and Institute those, but there will be variances per state. So I know there are certain things in California that are that may very much be very California specific. So if I were to be practising in Texas, I’d have to bone up on the Texas rules to ensure that number one, the if I draft a partnership agreement, it’s it’s kind of forming to those rules. And also what I’m doing in practice conforms to those rules.

Matthew Laurin 9:14

Obviously, without naming any names of clients or anything like that, do you have any horror stories of someone who didn’t have something in place and had to follow the default rules? And

Toni Y. Long 9:25

oh, wasn’t? Yeah, um, and not a necessarily a law firm context? Well, we certainly have this with some of our corporate clients. I mean, we’ve had clients who had no agreement at all, and needed to get rid of a partner and that became a costly and time consuming nightmare. We’ve had situations where clients have had an agreement, but it wasn’t tailored for them. It was, you know, essentially something they pulled, you know, from the Google School of of law from the Google Law Firm. And it did not work out for them because it really did not take into consideration how they run their business. And that particular instance, one of the biggest issues was this person had a fairly sizable interest in the, but they hadn’t made their capital contribution. And so they, they were enjoying kind of the fruits of everyone else’s labour in their work, and they weren’t doing any work, and they had made their capital contribution. But one could argue that their interests had vested. Now obviously, if if this had gone the litigation, we could have spent a great deal of money and time arguing that it hadn’t. But if they’d had a written agreement by someone who understands, okay, one of the first things you want to put in is if you don’t make your capital contribution, you don’t have an interest until we, we get that from you. And so your interest has invested. So it’s easier to get rid of you at that point. That was a pretty expensive lesson for that client to learn. Now, they have like a 20, almost 30 page agreement that’s proper for a company that has like seven partners in

Matthew Laurin 11:13

the that’s, that’s an interesting story. And I can totally see it not just in in, in law firms, but in all businesses, why it’s so it’s so important to have an agreement like that, um, I noticed some of the areas for a partner agreement talk about minority owners and majority owners, are there benefits that differ between those for those two different types of groups of owner ownership against the two different types of owners in the in the business?

Toni Y. Long 11:44

Well, yeah, I mean, um, you can imagine a situation where you have, you know, two or three partners, and they own the vast majority, and you have one person who maybe only owns like five or 10%. And, and then kind of railroading that person, if they’re not careful, if if some of the default rules weren’t in place to protect my minority owners. And so there are certainly rules in place that will, you know, you cannot divest some of their interests, just, you know, for, I don’t want to use the word that I’m thinking for giggles will say, there are, there are rules, you have to follow some of the rules that some of the provisions, we’ve put in agreements to kind of vary, and ensure that not those groups don’t kind of harm each other. For example, we do all drag along and tag along rights when it comes time to dispose of an interest in a company. So basically, what that means is, if I am for tagalong, if I’m a minority owner, and you decide to sell your interest in the law firm, or in the company, and I don’t, I may not necessarily want to be in business with that person or that company you sell it to. So I will include it in a provision that allows that minority owner to tag along and get the same rights that you’re getting, when you sell your interests, meaning if you buy their share, if they buy your shares, they have to buy mine at the same, you know, share price, for example, they can nickel and dime me and they can undercut me. And then on the flip side, if I’m a minority owner, or majority owner, and I want to sell my interest in the company, I don’t want to be prevented from doing that. Because, you know, there’s a minority owner who’s like, Nope, I’m not consenting. So then we’ll put it what we call drag along rights, which means I’m gonna drag you along with me. And we’re gonna sell the interest in the company so that, you know, the intent is and frustrated by someone who may be holding the deal up for any number of reasons. And you can imagine what some of those could be. Yeah,

Matthew Laurin 13:52

that’s really cool that things like that exist both for minority owners and majority owners, I can envision, you know, being a minority owner and maybe feeling like you have less power. And then if someone sells, you know, at least you have some options, if you put it in writing beforehand. Is there anything?

Toni Y. Long 14:11

Yeah, and then, I’m sorry. Continue, I was gonna say also, you know, in terms of decision making, if you’re a minority owner, you really want to participate in the drafting of these agreements, because you don’t want to give the person or persons who have the majority, too much power. Because that could come back and bite you. You know, you don’t want there’s certain things that you may say, you know, what, I think we should have unanimity on those decisions. Like if we are encumbering the assets of the company, for a certain, you know, you know, for a loan or what have you or borrowing money. How much we may want to put a limit on that so that, you know, it doesn’t imperil the company if we’re unable to i’ll make those comments or what have you so there’s certain things that as a minority owner you have to think about and certain situations where you may want to step up and say some some of these decisions should be unanimous i trust my majority owners up until a point but some things should be should require unanimity have you ever had

Matthew Laurin 15:20

a case where majority owners made some type of agreement without the minority owner knowing

Toni Y. Long 15:27

I mean you know they’re all men are bad actors I mean case law you know wouldn’t be what it is that didn’t happen so unfortunately yeah there are people who you know even with an agreement in place will do bad things will you know commit certain actions without the consent or knowledge of their business partners yeah we’ve had that and that tends to lead to litigation depending on what’s at stake and what that decision was you know changing you know copier companies that’s one thing but you know taking assets of the company and and lending them to do a third party that’s that’s something else you know so

Matthew Laurin 16:14

i’m what absolutely has to be in a partnership agreement is there something that you always recommend to clients that they do sort of across the board you always see certain things that have to be in there

Toni Y. Long 16:28

yeah I mean there are any number of provisions that we will certainly insist on but where I would probably start is you know we know that at some point there will be some triggering event where an interest enough in a company will need to be sold either you know through death disability divorce or retirement and so in those instances we want to plan ahead and deal with the what we call the buy sell portion of that shareholder agreement or have just a buy sell agreement and so that that is probably just the meat of your agreement if you have a law firm or any business really with your partners is what happens if someone needs to sell their interest in the company or that interest needs to be disposed of how do we handle that how do we value the interest how do we what’s what triggers the sale who has to purchase the interest and then how does that whole mechanism work what’s the timing of it just things like that because as you can imagine it can be a very long and drawn out process in terms of if especially in a situation where someone has passed away there there can be some urgency in terms of getting that interest from the estate back into the company or back into the hands of the other partners

Matthew Laurin 18:03

um if there is maybe a couple of attorneys thinking of starting a law firm together maybe they both been in private practice for a little bit and they’re thinking about joining forces what are some of the first steps they should should go through if they’re thinking about doing that

Toni Y. Long 18:17

I would tell them to sit down and and have a very meaningful honest conversation about what their expectations are why they want to join forces how they work if you worked with someone you get a pretty good idea of of you know the person’s personality it’s really important that you pick a business partner and then as careful away maybe even more careful that you pick your spouse the wrong choice can be very expensive and emotionally and psychologically draining I caution my clients on looking for certain kinds of signs in terms of the person you probably shouldn’t go into business with but certain personality types you should avoid at all costs the bully in the narcissist are at the top of my list and do not ever think is same thing in a personal relationship that you’re going to change a grown person they are who they are and you should not look to enter a relationship with you’re in your mind that i’m going to change you like you’re trying to run a business here you don’t have time to do that and you know be the therapist for your business and you know change them have a meeting of the minds at the very beginning and and talk about your expectations and be realistic i’m the partner who works with me when he came into my firm it was understood that he really he worked at a larger firm he was tired of that grind and he really wanted to be able to spend more time with his family he truly wanted what they call a lifestyle firm You hear that thrown around all the time a real lifestyle for? Well, technically every firm is a lifestyle firm, you know, just no matter what kind of lifestyle it is, and he wanted to join a firm where he could, you know, here’s a idea, spend time with his children and pick them up from school and take them to school and still be a practitioner. And that was fine with me. I understood his work ethic, I understood how he approached handling clients, and why it was important for him to be an attorney. And those were things that we were in agreement on, we have our way of dealing with clients. And our reason for even being attorneys are very similar. We’re not very bottom line people. And what I mean by that is, it’s not the most important thing for us is not how much money we’re going to make from the client. It really is, did we make an impact? were we able to assist that client on the issue that they brought to us? Or are we able to protect them in their business, that sort of thing? So those are the types of conversations I think you should have there. They’re not just your standard, kind of technical legal conversations, but they really have to get into the personality of the people who are core coming together, and can they work together and collaborate? And then what happens when you disagree? My partner and I have had disagreements, and we’ve had to work through that. And sometimes that means eating some crow when you realise you were wrong, and admitting it because you’re, you’re an adult, and apologising. And not saying I told you so when you’re right.

Matthew Laurin 21:40

There, we had a great business and life advice from Toni Long. Ladies and gentlemen, you’ve been listening to Toni Long, the managing partner and founder of The Long Law Group, Toni, where can people go to learn more about your firm?

Toni Y. Long 21:53

I can go to our website, we are at www.tyllaw.com. We’re on Avvo We’re on Super Lawyers, so they can just pop the name into Google and generally find us.

Matthew Laurin 22:09

There you go. Thanks a whole lot for being on the show, Toni. I really appreciate it.

Toni Y. Long 22:12

Yeah, anytime. Thank you for the great questions. This is a lot of fun.

Outro 22:20

Thanks for listening to the Esq.Marketing Podcast. We’ll see you again next time and be sure to click subscribe to get future episodes.

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