If a buyer from another firm takes over my business, are they a successor law firm?

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Yes, no and it depends on the circumstances is our answer!

If a buyer purchases your law firm, becomes a director of the firm and the law firm carries on as before then there is no successor business because the law firm has continued to trade and no-one has become a successor and inherited the liabilities. The original firm still has the liabilities because it still exists and is still trading.

If the buyer takes over your law firm and merges it into his/her existing law firm so that the new law firm is Smith & Co incorporating Old Firm & Co, then the new firm is the successor practice. The old firm has ceased to exist and is now part of the new firm structure.

I think this is the easiest way of distinguishing between a law firm sale where a successor practice is involved and a law firm sale where investors have purchased it and the practice is continuing as before.

Please get in touch if you would like to expand on this advice or clarify it further – always happy to add extra information to the FAQs..

Run Off Cover

There are all kinds of issues involving PII run off cover when it comes to law firm sales. The upshot is that while run off cover is a major stress for sellers to be worried about it tends not to be a major issue in the actual sale or disposal of your business because if you do achieve a sale or disposal of a practice it is highly unlikely you are going to need to pay run off cover. Some brokers still try to have their cake and eat it and try to make the seller pay run off cover even though their practice has been acquired by a successor firm. There are situations where run off cover comes into play because a buyer has simply bought the structure and not the clients of a firm, or vice versa, which in some circumstances still means that run off cover needs to be purchased in order to protect the seller when they retire.


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