Form of Partnership Agreement Partnership Agreement SECTIONS

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Form of Partnership Agreement
Partnership Agreement1
SECTIONS OF THE AGREEMENT
Sec. 1. PURPOSE OF AGREEMENT
Sec. 2. EFFECTIVE DATE
Sec. 3. NAME
Sec. 4. TERM
Sec. 5. HEADQUARTERS
Sec. 6. LICENSE; CODE OF PROFESSIONAL RESPONSIBILITY
Sec. 7. CLASSES OF PARTNERS
Sec. 7.1 Regular Partners
Sec. 7.2 Special Partners
Sec. 7.2.1 Voting by Special Partners
Sec. 7.2.2 Financial Interests
Sec. 7.2.3 Power and Authority
Sec. 7.2.4 Indemnification of Special Partners
Sec. 7.2.5 Other Matters Pertaining to Special Partners
Sec. 7.3 Transition Partners
Sec. 7.3.1 Compensation of Transition Partner
Sec. 7.3.2 Other Benefits
Sec. 7.4 Retired Partners
Sec. 7.4.1 Benefits to Retired Partners
Sec. 7.4.2 Partnership Obligations
Sec. 7.4.3 Of Counsel Status
Sec. 7.4.4 Of Counsel Agreement
Sec. 7.4.5 Duties
Sec. 7.4.6 Malpractice Insurance; Indemnity
Sec. 7.5 Restrictions on Authority
________________________
1. This form of partnership agreement has been drafted by the author, employing ideas suggested
by the case law and by copies of partnership agreements from various law firms that,
anonymously, supplied copies of their internal documents.
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Sec. 8. PROCEDURAL MATTERS
Sec. 8.1 Notice
Sec. 8.2 Notice Not Required
Sec. 8.3 Quorum
Sec. 8.4 Proxies
Sec. 8.5 Electronic Conference Meetings
Sec. 8.6 Voting
Sec. 8.6.1 Unanimous Votes Required
Sec. 8.6.2 Ninety Percent Vote Required
Sec. 8.6.3 Majority Vote Required
Sec. 9. COMMITTEES
Sec. 9.1 Executive Committee
Sec. 9.2 Partnership Shares
Sec. 9.2.1 Establishment of Shares
Sec. 9.2.2 Partnership Draw Committee
Sec. 9.3 Successors
Sec. 10. FINANCIAL MATTERS
Sec. 10.1 Assessments
Sec. 10.2 Compensation of Partners
Sec. 10.3 Firm Capital
Sec. 10.3.1 Capital Contributions
Sec. 10.3.2 Working Capital
Sec. 10.4 Net Income
Sec. 10.5 Insurance
Sec. 10.6 Benefit Programs
Sec. 10.7 Vacations and Sabbatical Leave
Sec. 11. WITHDRAWAL; EFFECT
Sec. 11.1 Payments to Withdrawing Partner
Sec. 11.2 Capital Account
Sec. 11.3 Percentage Draw; Compensation
Sec. 11.4 Interest in Inventory
Sec. 11.5 Personal Effects
Sec. 12. EXPULSION
Sec. 13. DEATH OR PERMANENT DISABILITY OF A PARTNER
Sec. 13.1 Death
Sec. 13.2 Permanent Disability
Sec. 14. TAX EFFECT
Sec. 15. RETIREMENT BENEFIT
Sec. 15.1 Amount Payable
Sec. 15.2 Condition to Receipt
Sec. 15.3 Consent
Sec. 16 ACCOUNTING
Sec. 17 PRIOR AGREEMENTS
Sec. 18 PROHIBITION ON ASSIGNMENT
Sec. 19 RECORDS
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Sec. 20 CONFIDENTIALITY
Sec. 21 REVIEW
Sec. 22 INDEMNIFICATION
Sec. 23 SEVERABILITY
Sec. 24 AMENDMENT
Sec. 25 ARBITRATION
Sec. 26 COUNTERPARTS
Sec. 27 JOINDER
Sec. 28 GOVERNING LAW
SIGNATURES
SCHEDULE OF CAPITAL CONTRIBUTIONS
THIS AGREEMENT (hereinafter "this Agreement") is made as of the __ day of _______, 19__,
having been executed on the dates set forth by each of the signatories hereto at the places
indicated adjacent to his or her signature. Each signatory, for the purposes hereof, is designated a
"Regular Partner," as hereinafter defined.
Sec. 1. PURPOSE OF AGREEMENT. The parties hereto desire to form and constitute a
partnership solely for the practice of law (hereinafter "the Firm"). The Firm may acquire interests
in other partnerships and corporations engaging in activities other than the practice of law but
only if, in the opinion of legal counsel for the Firm, legal liability for such other activities is
within the coverage of malpractice insurance covering the Firm and its partners.
Sec. 2. EFFECTIVE DATE. This Agreement shall be effective as of the date hereinabove
first set forth, notwithstanding that one or more parties hereto may not execute and deliver this
Agreement until a date subsequent thereto, except that any person executing this Agreement on a
date after the date hereinabove first set forth shall be liable only for those acts or omissions of the
Firm occurring after said date of execution; any such person shall be entitled to defense and
indemnity by the Firm against claims arising out of any act or omission that occurred before said
date of execution.
Sec. 3. NAME. The Firm shall be called "Jones, Smith & Roe." Each signatory hereto
acknowledges that none of the names in the Firm name (except "_______") is intended to
represent the surname of such signatory. Each signatory, on his or her own behalf and on behalf
of his or her estate, agrees to make no present claim and no claim in the future for compensation
on the ground that the Firm is employing a surname of such signatory. [_______ __ _____,
Esquire, on his/her own behalf and on behalf of his/her estate, waives any claim, now or in the
future, for such compensation.] The Firm shall employ no trade name or style, other than as set
forth above or as amended by the partners in accordance herewith, and shall not utilize in the
partnership name the name of any person not admitted to practice law in the state of _________.
Each partner whose name appears in the Firm name reserves the right, upon sixty (60) days'
written notice to the Firm, to rescind the right of the Firm to the use of said name should any
partner in the Firm be adjudged guilty of malpractice or violation of the Code of Professional
Responsibility by the entity having jurisdiction in the state of __________ over such matters.
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Sec. 4. TERM. The partnership shall exist for an indefinite term. Unless otherwise terminated
in accordance with the provisions hereof, it shall continue in existence and shall not be dissolved
notwithstanding the death, withdrawal, retirement, or expulsion of any partner or partners. The
partnership may be terminated, upon the request of any Regular Partner (as defined herein), and
after notice provided in the manner hereinafter described, upon the affirmative vote of seventyfive (75) percent of the Regular Partners taken in accordance with the procedures hereinafter set
forth. Notwithstanding any termination of the partnership in accordance with the provisions of
this paragraph, the partnership shall nevertheless continue in existence for the purposes of
winding up its affairs in the manner prescribed in the Uniform Partnership Act, or any
amendment or replacement thereof, in effect in the state of _________ on such date of
termination.
The provisions of the preceding sentence shall not apply to proposals to dissolve the partnership
voted upon pursuant to the provisions of Section 11 of this Agreement, concerning withdrawal,
or Section 12, concerning expulsion, of a partner.
Sec. 5. HEADQUARTERS. The principal office of the Firm shall be situated in the city of
____________, state of _____________. The Firm may have such other office or offices as the
Regular Partners may determine in the manner and in accordance with the procedures hereinafter
set forth.
Sec. 6. LICENSE; CODE OF PROFESSIONAL RESPONSIBILITY. Each signatory to this
Agreement undertakes to comply in every respect with all provisions of the Code of Professional
Responsibility in effect in the state of ___________ from time to time. Each signatory to this
Agreement will take all reasonable steps to maintain his or her license to practice law in the state
of ___________, and in such United States courts as he or she may be admitted to practice.
Failure of a partner to maintain such license or admission to practice, or to comply with
provisions of the Code of Professional Responsibility, shall be grounds for expulsion of such
partner from the Firm or other disciplinary action against such partner taken in the manner and in
accordance with the procedures hereinafter set forth.
Sec. 7. CLASSES OF PARTNERS. The partnership shall comprise the Regular Partners who
are signatories hereto, and such other Regular Partners as may be admitted to the partnership
from time to time hereafter. The Firm shall also include Special Partners, Transition Partners,
and Retired Partners.
Sec. 7.1 Regular Partners. A "Regular Partner" is a full-time working partner with an
ownership interest in the Firm and the right to vote upon all matters pertaining to, and brought to
a vote by, the Firm. A Regular Partner may be admitted to the Firm by vote of the Regular
Partners in the affirmative number required and taken in the manner provided hereinafter in this
Agreement. The admission of a Regular Partner shall not cause a dissolution of the partnership.
Each Regular Partner shall devote substantially all of his or her working time and attention to the
affairs of the Firm, except as the Executive Committee (hereinafter described) shall otherwise
approve. If any Regular Partner requests part-time status or absence in excess of normal vacation
or for purposes other than business of the Firm, he or she shall request the prior approval of the
Executive Committee, which shall approve or disapprove the request; the Executive Committee
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shall recommend to the Percentage Draw Committee (hereinafter described) whether any
adjustment in the Regular Partner's compensation during such change in status or absence is
appropriate.
Sec. 7.2 Special Partners. Any person not voted upon or, if voted upon, not voted upon
favorably, for admission to the Firm as a Regular Partner may be admitted as a "Special Partner."
Any person so admitted shall be a member of the class of Special Partners, but may have such
other designation (such as Contract Partner, Nonequity Partner, or the like) as the Executive
Committee shall determine. The vote for admission as a Special Partner shall be in the
affirmative number required and taken in the manner hereinafter provided in this Agreement.
Sec. 7.2.1 Voting by Special Partners. Special Partners shall receive notice of, and the
right to attend, all meetings of the partnership, except a meeting, or such portion thereof, at
which the distributive shares of the Regular Partners are to be discussed or voted upon. Special
Partners shall have the right to vote upon all matters presented to the Regular Partners for vote,
except that Special Partners shall have no vote upon any of the following:
(i) Admission of partners of any class
(ii) Matters related to the borrowing of money by the Firm
(iii) Matters related to the leasing of office space, furniture, or equipment by the Firm
(iv) Revocation of the authority of a partner of any class to act on behalf of the Firm
(v) Expulsion from the Firm or other discipline of a partner of any class
(vi) Establishment or amendment of the distributive share of any Regular Partner
Sec. 7.2.2 Financial Interests. Special Partners shall have no share in the net profits
and losses of the Firm, and no interest in Firm Capital or Firm Inventory. The term "Firm
Inventory," as used herein, shall mean the Firm's accounts receivable and unbilled work in
process, including work performed pursuant to contingent fee agreements.
Sec. 7.2.3 Power and Authority. Special Partners shall have the power and authority
to act in all client matters on behalf of the Firm and to sign opinions of counsel on behalf of the
Firm, provided, however, that Special Partners shall have only such express powers to sign on
bank accounts and trust accounts of the Firm as shall be granted individually to the Special
Partner concerned by the Executive Committee. By the affirmative vote of the same percentage
of Regular Partners as were required to vote affirmatively for admission of the Special Partner to
the Firm, the Special Partner's association with the Firm may be terminated, without prior notice
to the Special Partner and without specification of any reason therefor. By the affirmative vote of
not less than two-thirds (66 and 2/3 percent) of the membership of the Executive Committee, any
express power granted to the Special Partner may be terminated, without prior notice to the
Special Partner and without specification of the reason therefor. In the event of an affirmative
vote to terminate the Special Partner or to rescind any express power previously granted, the
Executive Committee may take such action on behalf of the Firm as it considers reasonable or
advisable to assure the Firm and the partners of the protection of such vote, including such
publication thereof as the Executive Committee deems necessary to protect the interests of the
Firm.
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Sec. 7.2.4 Indemnification of Special Partners. The Firm shall at all times hold each
Special Partner and his or her estate harmless from, and indemnify him, her, or it against, all
obligations of the Firm incurred before as well as after his or her retirement, death, or disability,
except such obligations of the Firm as arise in whole or in part from the actions of the Special
Partner and as are excluded or excludable from coverage (other than by reason of such policies'
deductible amount) under the terms of the Firm's liability insurance policies otherwise available
to indemnify the Firm against such obligations.
Sec. 7.2.5 Other Matters Pertaining to Special Partners. The Executive Committee
may, from time to time, establish such policies relating to the compensation, benefits, powers,
and responsibilities and limitations thereof, regarding the Special Partners, as the Committee
deems appropriate. Any Special Partner aggrieved by such action may bring the policy to the
attention of any meeting of the Regular Partners, who shall have the authority to amend, modify,
or rescind the policy by such vote of the Regular Partners as hereinafter specified.
Sec. 7.3 Transition Partners. A Regular Partner who elects to retire, may, upon not less
than six (6) months prior written notice to the Firm, retire before age sixty-five (65), and if he or
she has attained his or her sixty-fifth birthday, shall retire, commencing on the first day of the
fiscal year of the Firm next following said election or birthday. Upon such retirement, he or she
shall become a "Transition Partner," and shall continue in such capacity until attaining Retired
Partner status. A Transition Partner is encouraged, but is not required, to continue to practice law
as a partner in the Firm, but is expected to reduce his or her hours of active practice, to introduce
to other members of the Firm those clients with whom the Transition Partner is most familiar,
and to turn over to other members of the Firm such legal work on behalf of his or her clients as it
may be feasible and appropriate to do. As soon as practicable after achieving the status of
Transition Partner, such person shall resign all fiduciary positions (for example, trusteeships and
conservatorships) held at the behest of clients of the Firm. A Transition Partner shall no longer
be eligible for nomination or election to the Partnership Draw Committee or the Executive
Committee of the Firm, but shall be entitled to attend all partnership meetings and to vote at such
meetings. A Transition Partner shall not be liable for a capital assessment at any time from and
after the date he or she attains the status of Transition Partner. The Firm reserves the right, upon
the recommendation of the Firm's Executive Committee, to change the status of a Transition
Partner to that of a Retired Partner by a vote of the Regular Partners in the percentage and
manner hereinafter set forth. A Transition Partner whose status is thus changed shall continue to
receive payments from the Firm equivalent to the payments he or she would have received, and
during the same period he or she would have served, as a Transition Partner, but shall not be a
partner in the Firm for any purpose whatsoever.
Sec. 7.3.1 Compensation of Transition Partner. A Transition Partner shall receive a
distribution each year by applying the percentages in the table below to such partner's "Previous
Annual Income." The term "Previous Annual Income" shall mean the dollar amount of the
partner's average distribution received during the five years, not necessarily consecutive, out of
the last ten years, in which such partner's compensation was the highest, and any other monies
received by or credited to him or her in the form of taxable income reported to the Internal
Revenue Service on Form K-1.
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PERCENTAGE
Age at Payment
61
62
63
64
65
66
67
68
69
70
60
61.5
41.0
20.5
20.5
20.5
20.5
20.5
20.5
20.5
20.5
Age at Retirement
61
62
63
64
64.2
42.8
21.4
21.4
21.4
21.4
21.4
21.4
21.4
69.6
46.4
23.2
23.2
23.2
23.2
23.2
72.3
48.2
24.1
24.1
24.1
24.1
66.9
44.6
22.3
22.3
22.3
22.3
22.3
22.3
65
75.0
50.0
25.0
25.0
25.0
[COMMENT: The above table is illustrative of a scaling down of payments to a
retiring partner. Another, less complicated version might reduce the retiring partner's
compensation in each year after retirement by an amount equal to 20 percent of his or her
compensation in the preceding year.]
Sec. 7.3.2 Other Benefits. A Transition Partner shall continue to enjoy all of the
benefits and emoluments pertinent to him or her as a Regular Partner, including the right to
attend and vote at (to the extent permitted by the provisions hereof) all meetings of the
partnership.
Sec. 7.4 Retired Partners. Any person who has retired from the Firm pursuant to the
provisions of this section is a "Retired Partner." A Regular Partner or a Special Partner may
retire from the Firm at the end of any fiscal year of the Firm in which he or she attains age sixty
(60), or at such later date as he or she selects. Any expression of intent to withdraw before age
sixty (60) shall be deemed an election to withdraw from the Firm and shall be subject to the
provisions of Section 11 hereof. A partner must retire from the Firm not later than the end of the
fiscal year of the Firm in which he or she attains age seventy (70). Unless the retiring partner and
the Executive Committee of the Firm shall otherwise agree, such partner's membership in the
Firm in the case of a Regular Partner, and the partner's association with the Firm in the case of
any other partner, shall terminate at the end of the Firm's fiscal year in which retirement is
requested.
Sec. 7.4.1 Benefits to Retired Partners. Each partner who retires from the firm shall
be entitled to receive a retirement benefit, calculated in accordance with, and subject to the
conditions expressed in, Section 15 hereof. In addition, the Firm will use its best efforts to enable
each Retired Partner to participate, at his or her election, in the Firm's medical plan; provided,
however, that the entire cost of his or her coverage under such plan shall be paid by the Retired
Partner. A Retired Partner will not be covered under the Firm's life insurance plan for classes of
partners other than Retired Partners; should the Firm decide to make available any form of group
life insurance to Retired Partners, the Firm will use its best efforts to advise each Retired Partner
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of such availability. The Firm will purchase and pay the premium upon such malpractice
insurance as may be necessary to provide defense for, and indemnity to, the Retired Partner
against any claim, regardless of when made, regarding matters arising on or before the effective
date of his or her retirement.
Sec. 7.4.2 Partnership Obligations. No Retired Partner shall have any liability
whatsoever for any liability or indebtedness of the Firm, regardless of whether the liability or
indebtedness arose before or after the retirement from the Firm of the Retired Partner. The
provisions of Section 22 of this Agreement, regarding indemnity, shall apply to such liability.
Sec. 7.4.3 Of Counsel Status. Unless a retiring partner notifies the Firm of his or her
desire not to do so, any partner who retires from the Firm shall continue in "Of Counsel" status
with the Firm until the end of the Firm's fiscal year in which such Retired Partner attains age
seventy-two (72). The Executive Committee may, in its discretion, terminate the Of Counsel
status of any Retired Partner at any time following two (2) years after the effective date of his or
her retirement if it shall determine that continuation of such status is not in the mutual best
interests of the Firm and such Retired Partner. The Executive Committee may, in its discretion,
invite a Retired Partner to extend Of Counsel status beyond age seventy-two (72), on a year-byyear basis, if it determines that such extension would be of significant benefit to the Firm.
Sec. 7.4.4 Of Counsel Agreement. Each Retired Partner shall be entitled to receive
from the Firm, in addition to the benefits hereinabove mentioned and such other benefits as
mutually may be agreed upon, an office and office services, provided that the Retired Partner and
the Firm enter into an Of Counsel agreement that sets forth a description of benefits to be
provided the Retired Partner pursuant to Section 7.4.1 and Section 7.4.2, and a specification of
status pursuant to Section 7.4.3 and of duties pursuant to Section 7.4.5.
Sec. 7.4.5 Duties. Each Retired Partner continuing in Of Counsel status shall be
expected to be available to the Firm upon request for reasonable periods of time for client
development and for assistance with special Firm projects as requested by the Executive
Committee. The amount of time to be devoted to such matters without compensation, and the
rate of compensation to be provided for time expended in excess thereof, shall be set forth in the
Of Counsel agreement between the Firm and the Retired Partner. A Retired Partner shall not be
expected to perform legal services for clients of the Firm. Such Retired Partner may, however,
perform reduced levels of legal services to such clients to the extent authorized by the Executive
Committee.
Sec. 7.4.6 Malpractice Insurance; Indemnity. Should the Retired Partner be requested
or authorized to perform legal services or to assist with special Firm projects, the Firm will
provide, at Firm expense, malpractice insurance to defend and indemnify the Retired Partner
through the period of limitation for the commencement of any legal action against the Retired
Partner. Such Retired Partner shall be indemnified by the Firm and held harmless from and
against any liability, loss, cost, or expense arising in connection with the performance of any
such duty.
Sec. 7.5 Restrictions on Authority. No partner of the Firm, of any class, may perform any
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of the following acts on behalf of the Firm without the prior express written approval of the
Executive Committee of the Firm:
(i) Open a bank account
(ii) Sell, transfer, or pledge any asset of the Firm
(iii) Issue a guaranty or agree to indemnify any person or firm
(iv) Lease any real or personal property, except as permitted by subparagraph (v), below
(v) Contract for any goods or services not required in the ordinary course of representation of a
client (Examples of permitted contracts required in the ordinary course of representation are
those related to the rental of temporary office space during extended court trials, hiring of court
reporters, utilization of electronic research data services, provision of temporary office services,
service of process, and printing of court records, briefs, and other documents.)
Sec. 8. PROCEDURAL MATTERS.
Sec. 8.1 Notice. Each partner shall be entitled to receive a notice of each meeting of the
partnership, except as stated in Section 8.2, below, addressed to him or her at such place as he or
she shall specify in writing from time to time to the Secretary of the Executive Committee, or
such other employee of the firm as the Executive Committee shall from time to time designate.
Such notice may be delivered by mail, facsimile transmission, or computer, unless a partner has
indicated that notice may not be given by one or more of such means. Such notice shall state the
time, place, and purpose of the meeting and shall be accompanied by an agenda and brief
description of the action to be taken by the partners entitled to vote. Failure to give such notice to
any partner not entitled to vote at such meeting shall not invalidate any action taken by the
partnership at such meeting. Failure to deliver such notice at least five (5) business days before
such meeting to a partner entitled to vote at such meeting shall invalidate any action taken at
such meeting, unless the partner failing to receive notice shall nonetheless be present at such
meeting or shall waive such notice before or after such meeting. Notice by mail shall be deemed
delivered on the third (3d) day after the date of postmark; notice delivered by facsimile or
computer transmission shall be deemed delivered on the date of dispatch.
Sec. 8.2 Notice Not Required. No notice is required to be given to a partner of any
meeting at which the partnership shall consider expulsion of, or shall take a vote to expel, such
partner.
Sec. 8.3 Quorum. Unless otherwise specified herein, a quorum at any meeting for the
taking of any action by the partnership shall be a majority of the partners entitled to vote at such
meeting.
Sec. 8.4 Proxies. Any partner entitled to vote and unable to attend a meeting or any
portion thereof at which a vote will be taken may give a proxy to another partner. The proxy may
be in writing, at the election of the grantor, and may direct the proxyholder to vote for or against
a particular item, or may give the proxyholder discretion to vote as he or she may see fit. In the
event of a controversy, the Chair of the meeting shall determine which of two or more partners is
the holder of a valid proxy, and shall decide that the holder of a written proxy, signed by the
grantor, possesses the valid proxy. If the decision of the Chair is contested, or if the Chair deems
no person to hold a valid proxy, the Chair shall not announce the outcome of the vote until he or
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she has determined, from the grantor, at or after the meeting, which of the persons claiming to be
a proxyholder holds the valid proxy.
Sec. 8.5 Electronic Conference Meetings. Meetings of the partnership, noticed in
accordance with the provisions of this Agreement, may be held by use of electronic device, as
long as such device permits each participant in the meeting to hear each other person when such
other person is addressing the meeting.
Sec. 8.6 Voting.
Sec. 8.6.1 Unanimous Votes Required. The unanimous vote, in person or by proxy, of
all partners entitled to vote shall be required for approval of the following actions, provided that
the vote of the affected partner in the case of votes upon items (ii) and (iii) below, and the votes
of the objecting partners in the case of item (viii) below, shall be excluded in determining the
partners entitled to vote:
(i) Admission of a Regular Partner
(ii) Expulsion of a partner of any class
(iii) Changing the status of a Transition Partner to that of Retired Partner
(iv) Borrowing of money by the Firm
(v) Leasing of office space, furniture, or equipment for a term of one (1) year or more
(vi) Decision to bring legal action against a client of the Firm
(vii) Decision to resign the representation of a client of the Firm
(viii) Decision to represent a client upon objection of two or more partners of any class
(ix) Assessment of a capital contribution upon the Regular Partners
(x) Decision to (a) change the fiscal year of the Firm, or (b) change the accounting principles
from the cash to the accrual method of accounting for the Firm
Sec. 8.6.2 Ninety Percent Vote Required. The vote of ninety (90) percent of all
partners entitled to vote shall be required for the following actions:
(i) Approval of the admission of a Special Partner to the Firm
(ii) Adoption of a penalty against any Regular Partner failing to meet an assessment to provide
additional capital to the Firm
Sec. 8.6.3 Majority Vote Required. Unless otherwise specifically provided in this
Agreement, any other matter voted upon by the partners entitled to vote may be decided by a
majority of such partners present and voting, in person or by proxy, at any meeting of the Firm
called for the purpose.
Sec. 9. COMMITTEES.
Sec. 9.1 Executive Committee. The Executive Committee of the Firm shall comprise
seven persons elected by the Regular Partners from among their number. Each shall serve for a
period of three (3) years and until his or her successor has been chosen and qualified. Each such
term shall commence on January 1 of the year following election and shall expire on the third
December 31st thereafter. Each member of the Executive Committee may serve a second
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consecutive term in that position if so elected, but may not serve in that position again for at least
one (1) year following the completion of the second consecutive term. The Executive Committee
shall oversee the financial operations and controls utilized by the Firm; shall recommend to the
partnership the structure, form of organization, and personnel to provide the legal and nonlegal
staffing of the various departments of the Firm; and shall serve as the supervisory body for the
management personnel of such departments. The Executive Committee shall have such other
powers and duties as may be assigned to it by the partnership. The Executive Committee shall
meet not less than once per calendar month and shall report its activities to the partnership at
least once per calendar quarter. The Executive Committee shall select from among its members a
Chair and a Vice Chair, and shall choose from the nonlegal staff of the Firm an appropriate
person to perform the duties of Secretary to the Committee. The Chair may serve a second
consecutive term in that position if so elected but may not serve on the Executive Committee in
any capacity for at least one (1) year following the completion of the second consecutive term as
Chair or the earlier completion of service in that capacity. The presence of at least five (5)
members of the Executive Committee at a meeting thereof shall constitute a quorum. All actions
by the Executive Committee, unless otherwise provided in this Agreement, shall be taken by
majority vote of the whole committee.
Sec. 9.2 Partnership Shares.
Sec. 9.2.1 Establishment of Shares. The Regular Partners may, by unanimous
consent, agree upon the percentage share of each Regular Partner of the Firm, which percentage
shall govern for purposes of determining each Regular Partner's interest in Firm assets and in his
or her share of distributive Net Income. Such agreed share shall continue until one (or more)
Regular Partners advises the Executive Committee that he or she is no longer satisfied with the
percentage assigned to him or her. Failing such agreement, the percentage share of each Regular
Partner shall be determined by the Partnership Draw Committee.
Sec. 9.2.2 Partnership Draw Committee. The Partnership Draw Committee shall
consist of five (5) Regular Partners elected by them from among its number. Each shall serve for
a period of three (3) years and until his or her successor is chosen and qualified. Each member of
the Partnership Draw Committee may serve second and third consecutive terms in that position if
so elected but may not serve in that position again for at least one (1) year following the
completion of the second, or, if so elected, a third consecutive term. The Partnership Draw
Committee shall select a Chair from among its number. The Chair may serve a second and third
consecutive term in that position if so elected but may not serve on the Partnership Draw
Committee in any capacity for at least one (1) year following the completion of the second or, if
so elected, third consecutive term as Chair or the earlier completion of service in that capacity.
The presence of at least three (3) members of the Partnership Draw Committee shall constitute a
quorum at any meeting thereof. All actions by the Partnership Draw Committee, unless
otherwise provided in this Agreement, shall be taken by majority vote of the whole committee.
The committee shall report annually to the partnership the criteria to be utilized by the committee
in recommending the percentage of net income of the Firm to be distributed to each Regular
Partner during the course of the ensuing fiscal year. The members of the committee shall meet
with each Regular Partner during the final quarter of the fiscal year of the Firm and discuss the
criteria as applied to such Regular Partner. The committee shall then determine the percentage
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amounts of net Firm income to be awarded to each individual Regular Partner in the ensuing
year, and advise each Regular Partner of the percentage to be recommended for him or her. Any
Regular Partner who, within ten (10) days after receipt of such advice, fails to object by letter to
the Chair of the Partnership Draw Committee, shall be deemed to have accepted the
recommended amount of distribution. The committee shall then report the recommended
percentages to the Executive Committee. The Executive Committee shall, within twenty (20)
days after receipt of such report, either (a) approve the recommendations as submitted,
whereupon they will become the assigned percentages of each Regular Partner for the year, or
(b) return the recommendations to the Partnership Draw Committee, indicating the disapproval
of the Executive Committee and requesting further review. Within ten (10) days after receipt of
any disapproval by the Executive Committee, the Partnership Draw Committee shall complete a
review of its recommendations, make such changes therein, if any, as it deems appropriate, and
forward any such changes to the Executive Committee. Such reviewed recommendations, as and
if amended, shall become the final awards to each Regular Partner for the ensuing year. No
individual Regular Partner's percentage shall be changed after determination of a final award as
specified in the preceding sentence, except upon the affirmative vote at a meeting of the Regular
Partners of eighty (80) percent of the Regular Partners, present in person or voting by proxy,
including the vote of the Regular Partner objecting to the recommended percentage.
[COMMENT: As discussed in the text of this book, the manner of fixing partnership
draws needs the closest scrutiny to assure that the process will be one having the support of all
partners. The initial fixing should be in the hands of a small cadre of well-respected partners. The
appeal procedure should be available, simple, and expeditious. The above paragraph suggests
just one method of achieving that result.]
Sec. 9.3 Successors. Should seats become vacant on the Executive Committee or the
Partnership Draw Committee, for any reason, before the end of the normal term, successors shall
be elected by the Firm, in the manner and according to the procedures prescribed for the election
of regular members of said committees, for the balance of the unexpired term, except that no
such election shall be held if less than six (6) months remain in the term of any member whose
seat on either committee has become vacant. Service as a member of the Executive Committee or
the Partnership Draw Committee for more than two (2) years in completing an unexpired term
shall constitute a term on the respective committee for purposes of the term limitations set forth
in the preceding sections concerning the Executive Committee and the Partnership Draw
Committee. If the seat of the Chair of the Executive Committee or the Partnership Draw
Committee shall become vacant, the remaining members of the respective committee shall
forthwith elect a successor to hold the temporary office of Chair until a successor is elected by
the Firm and a new Chair is elected and qualified; the full committee shall proceed to elect such
Chair promptly upon the filling, by the Firm, of the vacancy on the committee.
Sec. 10. FINANCIAL MATTERS.
Sec. 10.1 Assessments. The Firm may from time to time call upon the Regular Partners to
provide additional capital for the Firm. The vote upon such proposal, as provided in Section 8.6,
shall be limited to the Regular Partners and must be unanimous. Any such assessment shall allow
each Regular Partner a reasonable period of time to deliver the funds required. The proposal shall
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include a statement of the penalty, if any, to be suffered by any Regular Partner who fails to
provide the amount assessed against him or her. Should any Regular Partner fail to provide the
additional capital called for by the assessment, any other Regular Partner(s) may agree to supply
the deficiency, and that partner (or those partners) shall have his or her capital account adjusted
accordingly upon receipt of the additional funds so provided. No penalty shall be imposed upon
any Regular Partner whose deficiency is met in full by any other Regular Partner(s).
Sec. 10.2 Compensation of Partners. Partners shall be entitled to draw against their
percentage of the estimated Net Income of the Firm for the applicable fiscal year as such
percentage is established by the Percentage Draw Committee from time to time. No partner shall
be entitled to draw more than such established percentage, and should the actual Net Income of
the Firm for the applicable fiscal year be less than the estimated Net Income upon which the
percentage draw of the partner was based, the difference between the amount to which the
partner would have been entitled based upon actual Net Income and the amount actually drawn
by the partner shall be carried upon the books of account of the Firm as a loan to such partner, to
be repaid as the Executive Committee and the Percentage Draw Committee, acting as a single
committee, shall by a two-thirds vote determine.
[COMMENT: In providing for partnership draws, many firms assume that each year will
always produce net income. For some firms, in some economic times, that may not be true.
Consequently, if the firm is to borrow money in a particular year, then the funds forwarded to the
partners should be considered loans to them and a method of repayment should be adopted to
parallel the firm's obligations. Alternatively, the agreement can provide that there will be no
partnership draws in any year in which the firm fails to have sufficient net income.]
Sec. 10.3 Firm Capital.
Sec. 10.3.1 Capital Contributions. Each Regular Partner shall contribute to the Firm
the amount of capital, in cash, as specified in the Schedule of Capital Contributions annexed
hereto. Each person admitted to the Firm as a Regular Partner shall contribute an amount equal
to the least amount shown on such annexed schedule. Capital so contributed shall be used only
for the purpose of making capital expenditures and in no event may be used for normal operating
and maintenance costs of the Firm. Whether a particular expenditure is a capital expenditure
shall be determined by the Firm's certified public accounting firm.
Sec. 10.3.2 Working Capital. The Executive Committee shall have the authority to
borrow, from time to time and for a period not exceeding one (1) year, sufficient funds to meet
the cash requirements of the Firm for its operating expenses, provided that any borrowings in
excess of $____________ shall first be approved, at a meeting of the Firm, by the unanimous
vote of the Regular Partners.
Sec. 10.4 Net Income. The term "Net Income," whenever used in this Agreement, shall
mean net income determined by the Firm's independent certified public accountant applying
uniform accounting principles on a consistent basis under the cash method of accounting.
Sec. 10.5 Insurance. The Executive Committee shall have the responsibility to solicit bids
for coverage of the Firm and its partners against the risk of claims for malpractice and other risks
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of liability, losses due to injury to property, workers' compensation claims, and the like. No
partner shall make any statement or withhold any information on any application of the Firm for
insurance that would tend to make such application false; any partner in violation of this
provision may be expelled, and shall be liable in damages to the Firm for such conduct. The
Executive Committee shall report to the partners the bids for coverage received, and shall
recommend approval of such bids as the committee deems appropriate. Any bid so recommended
may be approved at any meeting of the Firm, and the insurance purchased upon the affirmative
vote of a majority of the partners entitled to vote.
Sec. 10.6 Benefit Programs. The Executive Committee shall solicit, review, and
recommend to the partnership such benefit programs, for coverage of partners and employees of
the Firm regarding life and health insurance, as the committee may deem advisable. Any
employee benefit program recommended by the committee may be approved at any meeting of
the Firm, and the program implemented upon the affirmative vote of three-quarters of the
partners entitled to vote.
Sec. 10.7 Vacations and Sabbatical Leave. Each partner shall be entitled to the equivalent
of one (1) calendar month of vacation during each calendar year, which vacation may be taken at
one time or in increments of time during the year. Each partner with ten (10) or more years of
service as a partner with the Firm shall be entitled to a sabbatical leave not to exceed six (6)
months in duration. During such sabbatical leave, such partner shall receive an amount
equivalent to fifty (50) percent of such partner's compensation during the preceding fiscal year.
No partner may enter upon sabbatical leave without the prior approval of the head of the
department to which he or she is assigned, and the concurrence of the Executive Committee in
such approval. Each partner is expected to arrange for proper attention, by another partner or
other partners during his or her absence on vacation or sabbatical leave, to matters for which the
partner on vacation or leave normally would be responsible. The provisions of this Section 10.7
may be amended by the affirmative vote of two-thirds of the Regular Partners.
Sec. 11. WITHDRAWAL; EFFECT. A partner may withdraw from the Firm at any time
upon not less than three (3) months' notice in writing, addressed to the Chair of the Executive
Committee. Unless otherwise mutually agreed between the Firm and the withdrawing partner, all
interest of the withdrawing partner in the Firm shall cease as of the date given in the notice
(hereinafter "Effective Date"), except the right of the partner to receive such payments as may be
due him or her pursuant to provisions of this Agreement. Unless otherwise determined by the
unanimous vote of the remaining partners, the withdrawal of a partner shall not cause the
dissolution of the partnership.
Sec. 11.1 Payments to Withdrawing Partner. A partner who withdraws from the Firm
pursuant to Section 11 of this Agreement shall be entitled to receive the payments described in
this Section 11. A partner who withdraws and fails to give the notice specified in Section 11,
shall be subject to any penalty voted in the manner prescribed and in accordance with Section
8.6.2 of this Agreement.
Sec. 11.2 Capital Account. The Firm shall pay to the withdrawing partner, in one (1)
payment or, at the Firm's option, in calendar quarterly installments over a period not to exceed
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three (3) years (together with interest on the unpaid amount at not more than the prime rate then
prevailing), the amount, if any, standing in the capital account of the withdrawing partner as of
the Effective Date.
Sec. 11.3 Percentage Draw; Compensation. The Firm shall pay to
(a) the withdrawing Regular Partner or Transition Partner, within sixty (60) days after
the Effective Date, that portion of the percentage draw of the withdrawing partner earned by him
or her to the Effective Date and not theretofore paid to him or her, or
(b) the withdrawing Special Partner, within thirty (30) days after the Effective Date,
that portion of the compensation of the Special Partner earned but unpaid as of the Effective
Date,
less any amounts owed to the Firm by the withdrawing partner for repayment of sums theretofore
advanced to him or her by the Firm, or for services performed by the Firm for him or her, plus
any amounts owed by the Firm to the withdrawing partner for reimbursement of expenses
incurred by the withdrawing partner on behalf of, and theretofore unpaid by, the Firm.
Notwithstanding the foregoing, the payment to any partner who withdraws from the Firm at any
date within five (5) years of the date of his or her return from a sabbatical shall be reduced (but
not to an amount less than zero) by an amount equal to the total paid to such partner while he or
she was on sabbatical leave, multiplied by the following fraction: 1 minus N/60, where N is the
number of months (not to exceed sixty (60)) worked after such return.
Sec. 11.4 Interest in Inventory. The Firm shall pay to the withdrawing partner, in
quarterly installments over a period not to exceed three (3) years as the Firm in its discretion
shall determine, the amount of the interest (hereinafter "Percentage Interest"), if any, of the
withdrawing partner in the Firm's accounts receivable and unbilled work in process (together
with interest on the unpaid amount at the prime rate then prevailing). It is agreed that such
Percentage Interest shall be determined as of the last day of the Firm's fiscal year if it coincides
with the Effective Date or, otherwise, the last day of the Firm's fiscal year preceding the
Effective Date. It is agreed that to the extent the withdrawing partner would have a Percentage
Interest in any contingent fee unearned at the Effective Date, the obligation of the Firm to pay
the withdrawing partner's Percentage Interest in respect thereof, including the privilege of
installment payment, shall be deferred until the amount of the fee is determined and received by
the Firm.
Sec. 11.5 Personal Effects. The withdrawing partner shall remove from the premises of
the Firm, on or before the Effective Date, all personal furniture, office equipment, effects, and
files, and shall not remove any such items that are the property of the Firm. All files, records,
forms, discs, tapes, software, memoranda, correspondence, and all documents and writings of
any kind or nature pertaining to the business or clients of the Firm shall, as between the Firm and
the withdrawing partner, remain in the sole and exclusive possession of the Firm.
Sec. 12. EXPULSION. A partner may be expelled immediately and without cause by the
affirmative vote of that same number of partners required for his or her election to partnership if
the vote for election were taken at the same time the vote for expulsion is taken. No notice of
such meeting shall be required and, if given, such notice need state only the date, time, and place
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of the meeting. Upon such expulsion, the partner so expelled thereafter shall have no right or
interest in the Firm or any of its assets, clients, files, records, or affairs. Payments to a partner
expelled shall be as set forth in Section 11 regarding a withdrawing partner. The expulsion of a
partner shall not cause a dissolution of the partnership unless otherwise determined by vote of
the remaining partners taken in the same manner as provided in Section 8.6.1 of this Agreement.
Sec. 13. DEATH OR PERMANENT DISABILITY OF A PARTNER.
Sec. 13.1 Death. The death of a partner shall terminate all of his or her interest in the
Firm, its property and assets, and, in the case of a Regular Partner, in the partnership. The Firm
shall pay to the designee of the deceased partner, within thirty (30) days of the date of death,
(a) in the case of a partner other than a Special Partner, the percentage interest of the
partner earned but unpaid plus his or her interest in Inventory, as of the date of death, and
(b) in the case of a Special Partner, the compensation earned by him or her and
unpaid as of the date of death,
less any amount representing funds advanced to the partner for expenses unaccounted for by the
deceased partner, plus, at the request of, and against presentation of appropriate bills from the
designee of the deceased partner, any amount representing amounts expended by the deceased
partner for client or Firm matters, and for which the deceased partner previously was not
reimbursed. In addition, within sixty (60) days after the date of death, the Firm will pay to the
designee of the deceased partner, other than a Special Partner, his or her capital account as
shown on the books of the Firm. The surviving Regular Partners of the Firm shall indemnify the
estate of the deceased partner against any liability for bank or other debt of the Firm existing at
the time of death.
Sec. 13.2 Permanent Disability. A partner may be determined to be permanently disabled
upon the affirmative vote of eighty (80) percent of the partners entitled to vote, including the
partner whose permanent disability is in issue. Upon a determination that a partner is
permanently disabled, effective on the date of the vote so determining, the partner shall have no
further interest in the Firm and shall receive the payments otherwise payable to the designee of a
deceased partner, as in Section 13.1 above provided.
Sec. 14. TAX EFFECT. It is contemplated by the parties to this Agreement that any
payments hereunder for the interest in the Firm of a withdrawing, permanently disabled, or
deceased partner are, to the extent that they represent payment for partnership properties, capital
payments falling under Section 736(b) of the Internal Revenue Code. All other payments for the
interests of such persons are intended by the partners as payments of partnership income under
Section 736(a) of the Internal Revenue Code. Each partner covenants for himself/herself and
his/her heirs and assigns that he or she will make no claims or representations with reference to
the income tax nature of any such amounts that are inconsistent with the intent expressed in this
Section 14.
Sec. 15. RETIREMENT BENEFIT.
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Sec. 15.1 Amount Payable. Each partner who retires from the Firm pursuant to Section
7.4 shall be entitled to a retirement benefit from the Firm. A partner who has served as a partner
of the Firm for ten (10) or more years at the time of retirement shall be paid an amount equal to
seventy-five (75) percent of such partner's Average Earned Income (as defined). In the case of a
partner who has served as a partner of the Firm for less than ten (10) years at the time of
retirement, the retirement benefit shall be reduced to an amount determined as follows: the
amount calculated by the formula in the preceding sentence shall be multiplied by a fraction, the
numerator of which is the number of years the retired partner served as a partner in the Firm and
the denominator of which is ten (10).
Sec. 15.2 Condition to Receipt. Any partner who retires from the Firm shall, as a
condition of receiving payments under Section 15.1 hereof, agree with the Firm that he or she
will not engage in the practice of law in competition with the Firm in the state of _________, or
in any other state where the Firm then has an office, for the time period during which retirement
payments are being made under Section 15.1. Any partner who does not so agree shall be treated
as a withdrawing partner and entitled only to the payments provided in Section 11 hereof. If the
Executive Committee determines that any retired partner who is receiving benefits determined
under this Section 15 is engaging in activities in competition with the Firm or has solicited or
received other than an insignificant amount of business from clients of the Firm, the Firm may,
forthwith, terminate the remaining payments to such retired partner.
[COMMENT: The provisions above regarding retirement payments suggest an
uncomplicated formula. Other provisions can be drawn to cover other arrangements to offer
more generous payments to founding members, or members with longer service, of the firm.
Some firms have related adjustments in the amount of the payment to changes in the cost-ofliving index, or to variations in partners' average annual income, or to some combination of both.
It may also be desirable to provide a cap on the total amount of benefits the firm is obligated to
pay. This will obviate a situation where, following the retirement of a large group of very senior
partners, the burden on the income of the firm might leave an amount insufficient to meet the
compensation needs of the remaining active partners. In short, considerable thought, ingenuity,
and innovation needs to go into the design of the retirement pay provision of the partnership
agreement.]
Sec. 15.3 Consent. No amendment of the provisions of this Section 15 made after the
retirement of a partner may change the method of calculating the amount of the benefit payable
to a partner who has retired from the Firm, if the calculation required by such amendment would
result in a reduction in the amount of the benefit receivable by the retired partner.
[COMMENT: Just as it may be desirable to protect the firm by including a cap on
payments, so also it is appropriate to include this, or a similar, provision to prevent a reduction in
benefit payments to a retired partner, other than through the normal operation of the formula in
existence when the partner retires.]
Sec. 16. ACCOUNTING. Any partner (or, in the case of a deceased partner, his or her estate)
who shall withdraw, be expelled, or die, who is not satisfied with the amounts determined by the
Firm to be payable to him or her pursuant to the provisions of this Agreement, shall be entitled to
an accounting, to be rendered by the firm of certified public accountants retained by the Firm.
Should the partner (or, in the case of a deceased partner, his or her estate) be unwilling to accept
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such firm of certified public accountants, a representative of that firm and the representative of a
firm selected by the unwilling party shall select a third firm of certified public accountants that
shall conduct the audit and render the accounting.
Sec. 17. PRIOR AGREEMENTS. Any and all agreements by or among the parties hereto
made before the date hereof, excepting only such agreements as pertain to the life insurance,
health insurance, and retirement plans of the Firm, are hereby rescinded, replaced, and
superseded by this Agreement.
Sec. 18. PROHIBITION ON ASSIGNMENT. No partner shall directly or indirectly sell,
assign, or encumber such partner's interest in the Firm, nor shall such partner permit such interest
in the Firm to be directly or indirectly sold. No partner whose membership in the Firm shall have
terminated, nor any person claiming on such partner's behalf, shall have any interest in the Firm's
practice, business, assets, or profits other than for payments specifically provided for herein.
Sec. 19. RECORDS. All records, reports, files, computerized data, case materials, research
memoranda, correspondence, and similar documents, compiled in the course of the performance
of services with or for the Firm, except to the extent that a client or clients of the Firm may have
rights thereto, shall be the exclusive property of the Firm. Any retired, withdrawn, or terminated
partner shall have no rights in or with respect to any such records upon and after such partner's
withdrawal, retirement, or other termination from the Firm, and, after the death of any partner, no
personal representative of such partner or his or her estate shall have such right, except as
expressly granted, in writing, by such client(s) or by the Executive Committee of the Firm.
Sec. 20. CONFIDENTIALITY. Any retired, withdrawn, or terminated partner shall maintain
in strict confidence all information concerning the Firm's business and the business of its clients,
its internal operations, profitability, and related matters, and shall not, without the express
written consent of the Executive Committee, disclose any such information to any person not
associated with the Firm.
Sec. 21. REVIEW. The provisions of this Agreement shall be reviewed by the partners, with
a view to possible amendment or modification, during the second half of the Firm's fiscal year
ending in the year 20__. Notwithstanding the foregoing, any partner may request a
reconsideration of any provision of this Agreement by written petition to the Executive
Committee, which petition shall set forth the requested change in the provision. The Executive
Committee shall consider the proposal within sixty (60) days after receipt. If the Executive
Committee, by majority vote, recommends consideration of the proposal by the Regular Partners,
it shall be placed on the agenda of a regular meeting of the Firm for such consideration not later
than one hundred twenty (120) days after receipt of such recommendation from the Executive
Committee.
Sec. 22. INDEMNIFICATION. Each retired, withdrawn, or terminated partner, other than a
partner expelled pursuant to the provisions of Section 12 hereof, shall be indemnified and held
harmless by the Regular Partners from and against any Firm liability incurred after the date of
such partner's retirement, withdrawal, or termination.
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Sec. 23. SEVERABILITY. In the event any provision of this Agreement shall be held invalid
or unenforceable by any court of competent jurisdiction, such holding shall not invalidate or
render unenforceable any other provisions hereof.
Sec. 24. AMENDMENT. This Agreement may be amended at any time by the vote of twothirds of the Regular Partners, unless otherwise specifically provided herein with respect to
discrete issues, and provided that no provision hereof requiring a greater vote than two-thirds of
the Regular Partners may be amended except by the same greater vote.
Sec. 25. ARBITRATION. Any dispute or controversy arising under this Agreement, if not
resolved by mutual agreement of the parties hereto, shall be submitted to arbitration before a
panel of three arbitrators in the city of ______________ for settlement under the commercial
arbitration rules of the American Arbitration Association as then in effect, and judgment upon
the award may be entered in any court of competent jurisdiction, provided, however, that the
panel of arbitrators shall be chosen as follows: the Firm shall select one arbitrator and the other
party to the controversy shall select one arbitrator, each of whom shall be a partner in a law firm
in the United States having not less than the number of partners of the Firm; the two arbitrators
thus selected shall select a third arbitrator, who shall also be a partner in a law firm in the United
States having not less than the number of partners of the Firm. If the two arbitrators selected by
the Firm and by the other party to the controversy are unable to agree upon the third arbitrator
within thirty (30) days after their selection, the third arbitrator, satisfying the criterion aforesaid,
shall be selected by the American Arbitration Association.
Sec. 26. COUNTERPARTS. This Agreement may be executed in several counterparts, each
of which shall be deemed an original, and all of which shall constitute one and the same
agreement.
Sec. 27. JOINDER. Each partner admitted to the Firm after the effective date hereof shall
execute a joinder agreement to this Agreement, as it may be amended from time to time. Each
such partner shall be deemed a party to and bound by this Agreement as of the effective date of
his or her admission to the Firm.
Sec. 28. GOVERNING LAW. This Agreement shall be governed and interpreted in
accordance with the laws of the state of __________.
IN WITNESS WHEREOF, the partners have executed this Partnership Agreement as of _______
___, ____.
[Names, typewritten, and signatures of all partners]
ATTACHMENT: Schedule of Capital Contributions (Name of partner, amount of contribution,
and date of contribution).