Commonly Omitted Provisions in CPA Firm Partner Agreements

Partner agreements are a key organizational document for any business, including CPA firms. Firms normally don’t find themselves needing to refer to them, but in the event that they do it’s important to have the right provisions included to be able to effectively handle situations as they arise. Many partnership or operating agreements from CPA firms either miss out or lack clarity and detail in important provisions. Here are the top five I see commonly omitted: Hands Shaking

  1. Vesting:
    • It is important to clearly articulate the commitments required of partners to earn full retirement benefits. Regardless of which system a firm uses to determine a partner’s buyout, firms should have minimums for years of service and/or age before a partner can “earn” their share of retirement benefits. A typical year requirement ranges from 15–20 years and encourages partners to continue growing the firm and developing staff prior to retiring.   
  2. Death and disability:
    • While no firm wants to think about either of these situations, both death and disability provisions are important in a partner agreement so the remaining partners know how to proceed operationally and financially during a stressful time. Specifics to address how permanent disability is defined, how you want to compensate a partner who becomes disabled both prior to being declared permanently disabled or disability insurance payments commencing, whether you want to accelerate vesting for retirement, and whether the firm wants to provide life and/or disability insurance for its partners (which I recommend).
  3. Voting: While many partner agreements have a clause that discusses how voting will work, firms often fail to mention which decisions will require a vote or their list misses situations such as:  
    • Selling/merging with another firm 
    • Removing the managing partner or executive committee members 
    • Filing for bankruptcy 
    • Dissolving the firm 
    • Another item to note is how smaller firms, especially sole proprietors or firms with founding partners that entered the partnership at the same or similar times, want to account for newer partners entering the partnership and what level of voting power they will have. It is common for founders to maintain overriding power on most, if not all, voting matters to ensure they aren’t outvoted by the more junior partners, especially on impactful issues such as selling the firm.
  4. Partner Duties 
    • Astonishingly, a section spelling out the duties of a partner is left out of many CPA firm agreements. Listing the specific expectations or responsibilities of partners serves as a “job description” for that role.  
  5. Partner Restrictions
    • No firm expects that their partners will commit a felony, be suspended or expelled from a professional organization, or engage in illegal behavior that jeopardizes the firm’s reputation, but it is best to clearly define these instances in the unlikely event that you need to take remedial action. I always ask firms if they want these restrictions to be grounds for expulsion from the partnership and grounds for reducing that partner’s share of retirement benefits being either in part or in total. Defining restrictions doesn’t compel the firm to reduce or revoke goodwill benefits, but that it at least gives the remaining partners the discretion to do so.  

Did you recently add any of these provisions to your partner agreement? Let us know in the comments below.

The legal issues related to partnership or operating agreements vary by state law.  Be sure to check with your attorney and applicable state laws to apply the principles addressed in this blog at your firm.


  1. Robert Wheeler (CEO-retired) on February 22, 2023 at 8:57 am

    Our firm recently completely updated and rewrote our partner agreements. This book was an invaluable guide in making sure that our new documents cover all the bases.

  2. R Peter Fontaine, Esq. on February 23, 2023 at 8:21 am

    Here are a couple of other items I’d add to the list of missing or lacking Partnership Agreement provisions.

    1. What does it cost to “buy-in” as a partner? How is ownership percentage determined; and what does it (ownership percentage) mean? The cost of buying-in should not be a barrier to becoming a partner; but it should be meaningful. Firms struggle with ownership percentages when it really doesn’t effect much – it doesn’t effect compensation, voting, or retirement benefits.

    2. How are the proceeds divvied-up when the firm is acquired? And . . . do former partners get a slice of the pie? First, what are the “proceeds?” Rarely (never) is it all cash. It’s usually no or a little cash, a payment stream for partners approaching retirement, and merging into the buyers retirement plan for “younger” partners. A lot of firms will divide the proceeds in accordance with ownership percentages. But, is that fair if the lion’s share of ownership is in the hands of a one or two partners, and other partners have contributed significantly to the success of the firm? And. . .then . . . there is the dreaded “claw back” provision to pass on some of the proceeds to the departed partners. It sounds good on paper, but how do you determine what the “proceeds” are that can be allocated to former partners? (What’s the value of a younger partner’s future interest in the buyer’s retirement plan?)

    3. How should common situations related to a partner’s departure and their retirement benefit be addressed? What if a solid partner can’t give the prescribed notice of their withdrawal – e.g., they have an excellent career opportunity, or a personal hardship? What if there is a significant loss of clients after a partner leaves? What is partner just “has to go,” but is not really terminated for cause?

    4. Are “Income Partners” just employees; or do they have some rights/obligations above the rank and file? Do they have a vote; and on what matters? Do that get a “parting gift” when they leave (e.g. a percent of comp, a fixed amount)? Do they get salary continuation if temporarily disabled? Do they get any proceeds from a sale (e.g. a fixed sum, a sliver of the proceeds)? Do they make a “capital contribution” – a small loan to the firm?

Get our expertise delivered to your inbox.

"*" indicates required fields