On June 2, the Department of Justice, Antitrust Division, agreed to its first settlement of a merger challenged under the new administration, less than one week after the Federal Trade Commission (“FTC”) entered into its first such settlement. The consent decree will require the divestiture of three businesses and will allow Keysight Technologies, Inc. to complete its proposed $1.5 billion acquisition of Spirent Communications plc.

In February, Assistant Attorney General Abigail Slater previewed that the new administration might “take a different approach than the prior Antitrust Division on settlements in merger cases where effective and robust structural remedies can be implemented without excessively burdening the Antitrust Division’s resources.” The Keysight/Spirent consent decree is consistent with that promised approach and a helpful development for companies interested in transactions involving largely complementary businesses.

The Merger

Keysight is a U.S. company that the Department of Justice press release describes as offering “design, emulation, and test solutions across a range of industries, including commercial communications; aerospace, defense, and government; and electronic industrial.” Spirent is a UK company that offers “automated test and assurance solutions for networks, cybersecurity, and satellite positioning.” The parties are global providers of specialized equipment used to test various components of communications networks and measure and validate network performance.

Network equipment manufacturers, communications network operators, and cloud computing providers purchase and use this testing equipment to ensure their products and networks operate effectively and securely under normal conditions and withstand interruptions, cyberattacks, interference, and high user volume. Lab testing ensures that communications networks can support updated devices, comply with revised industry standards, and maintain data security as the cybersecurity landscape changes.

According to publicly available information, the parties notified the UK’s Competition and Markets Authority, which raised no objections to the transaction.

Theories of Harm

According to the Antitrust Division’s complaint, the combined companies would dominate the U.S. markets for high-speed ethernet testing, network security testing, and radio frequency (“RF”) channel emulators. The parties combined account for 85 percent of the market for high-speed ethernet testing, at least 60 percent of the market for network security testing, and more than 50 percent of the market for RF channel emulators. Allegedly, Keysight and Spirent are each other’s closest competitors in these markets and compete head-to-head to develop and sell the equipment.

Although the proposed transaction was cleared by the UK antitrust authority, the U.S. agency alleged that it would substantially lessen competition for each of those three types of communications testing and measurement equipment. The Antitrust Division contended that the reduced competition would likely result in higher prices, lower quality, and reduced innovation.

The Settlement

With only one exception, the prior administration did not accept divestiture or behavioral remedies in merger challenges, and the agency was vocal about its view that divested assets are not likely to compete as robustly as the premerger firms. In 2023, however, under pressure from the court, the Antitrust Division accepted its one and only merger settlement. That settlement also included a number of unusual requirements aimed at allowing the Antitrust Division to monitor and police the effectiveness of the remedy.

The Keysight/Spirent consent decree will require the divestiture of Spirent’s high-speed ethernet testing business, network security testing business, and RF channel emulation business. According to Slater, the settlement “secures enforceable commitments from the merging parties, provides transparency into the Antitrust Division’s efforts to resolve merger investigations, and gives the public an opportunity to comment as provided by statute.”

The willingness of the FTC and the Antitrust Division to consider structural or divestiture remedies is a meaningful shift in approach. The recent settlements do not signal that “anything goes,” but they do allow companies contemplating transactions of predominantly complementary businesses the opportunity to achieve the benefits of such combinations. Companies will need to assess the extent of any overlaps, the number of meaningful competitors, the nature of the competition among all the competitors, and whether divestiture of one party’s overlapping business could be successful and substantially replace lost competition.

Notwithstanding the ever-changing world of international governmental and economic affairs, globalism is far from gone. In fact, it is more relevant than ever for businesses and organizations of all sizes and industries. Even those primarily operating within a particular country or regional economy must address globalized issues such as supply chains, tariffs, branding, intellectual property protection, financial markets, competition law, investment treaties, international dispute resolution, and more.

Strategic industries—including aerospace, energy, and maritime—will inevitably be subject to a plethora of national laws that impose impactful regulations that vary by country or region (such as the European Union). Regardless of an organization’s size or focus, however, the proliferation of the internet, social media, international travel, and global transportation networks has effectively made global citizens of everyone served by global supply and distribution systems, with increasingly few physical and communication boundaries. Few industries remain untouched by technology-driven disruption, and most now rely significantly on e-commerce.

Companies in strategic industries, and many others, need savvy, strategic legal counseling on negotiation and documentation issues that cross boundaries and address the unique aspects of local laws in the countries involved. The result must be comprehensive, enforceable solutions that address the full scope of the global legal landscape.

As clients increasingly require services across national boundaries, law firms are pressured to have global delivery capabilities. Supply and distribution agreements, corporate transactional agreements, finance documents, and some other legal agreements are beginning to follow more common patterns across jurisdictions. This is especially driven by major business and financial cities, and specific industries.

Providing globalized legal services is not an easy task, however. Laws and regulations continue to vary tremendously by country, as do the practices of regulators and courts. While certain types of agreements—from bottling contracts to joint ventures, mergers, and ship charters—may share common features regardless of where they originated, that is only the starting point. Finalizing enforceable documents across jurisdictions requires attention to a wide range of issues related to culture, business convention, jurisdictional law, language, dispute resolution, and more. What may be readily agreeable to two parties in a common jurisdiction will often entail extended negotiation and adaptation once a border is crossed.

To address client expectations for cross-border legal services, law firms have pursued a number of different paths. Historically, firms based in major business and financial centers maintained networks of local correspondent firms as client needs arose in other countries—a model still widely used. Over time, more leading firms began to selectively open their own offices in other key international cities, while continuing to maintain active correspondent networks. Some firms handle international needs through marketing associations of like-minded firms. More recently, a few have expanded aggressively to determine a presence in nearly every city of commercial significance.

These approaches evolved within conventional, highly structured law firms. Senior lawyers served as firm partners, with periodically elected management teams and partnership agreements negotiated annually to reflect contributions and performance. As firms scaled, managerial roles were held by nonpracticing lawyers, and practice areas each had their own management team. Office footprints grew to include significant investments in marketing, associate training, technology, and administrative support. Thus, “Big Law” was born.

Nevertheless, legal services remain a distinct segment of professional services and service businesses. To be a top lawyer in one’s chosen specialty requires primary devotion to that practice area and consistent interaction with other high-level practitioners and the judiciary. Above all, it demands 24/7 dedication to clients. Savvy clients expect direct access to the seasoned attorneys handling their matters. While office prestige and support teams are appreciated, it is the skill and commitment of the lead attorney or team managing the specific transaction, restructuring, patent prosecution, or dispute that matters most.

Given the rising cost of outside legal services and the managerial demands on senior practitioners in a conventional law firm, both clients and lawyers have increasingly looked to alternative firm models. One such alternative is the distributed, or virtual, law firm, a model that originated in the United States, spread to the United Kingdom, and now is expanding globally. These firms feature flat hierarchies, limited office and administrative overhead, and limited reliance on associates and junior lawyers.

Thanks to today’s technology and the ease of remote work, distributed law firms have unique capabilities to handle complex cross-border matters with efficient and highly focused lawyering. Clients benefit from working directly with the lawyers they know and are looking for, without the costs associated with a host of overhead services. Lawyers retain full autonomy to set client engagement terms and staff projects, build respected client relationships, and control the distribution of client receipts on their matters, and they are also able to access qualified colleagues across practice areas and jurisdictions.

With legal challenges increasingly spanning jurisdictions and clients demanding business-savvy counsel across borders, the distributed law firm model offers one compelling answer. It reflects the realities of modern global commerce and can provide the kind of responsive, internationally informed legal support that businesses now require to compete and thrive on a global stage.

Did you know that if you’re a sweepstakes winner in Canada, you’ll have to do a math problem before collecting your prize? Or that the value of a prize you win in Japan may not exceed JPY 100,000 JPY (approximately USD 700) if you are required to purchase a product to participate? Or that if you live in Brazil, it’s unlikely you’ll be able to enter at all, even if the sweepstakes is being offered all around the world?

Global promotional campaigns come with a complex web of international legal requirements. Countries across the world have their own rules and regulations on promotions, and there can be dire consequences for any company that does not follow the law. Corporate lawyers, by nature, tend to hate ambiguity and risk. If you’re an attorney with a major brand, you might be tempted to hide under your desk when someone from marketing suggests a sweepstakes campaign.

That said, sweepstakes and contests are powerful marketing tools when executed correctly. They can grab attention and build long-term loyalty, and they are one of the most reliable drivers of opt-in, first-party data. The benefits often far outweigh the hurdles for those who understand the law.

Global promotion laws can get complex (and strange)

Promotional laws vary significantly across countries and can seem pretty unusual. For example, in Canada, games of pure chance that require money (including in the form of a product purchase) to enter are considered criminal offenses. To circumvent that issue, skill-testing questions are required as part of the process. Before the winner collects their prize, contest winners typically must correctly answer a two-digit, four-step mathematical question, without the use of any external aid (such as mechanical assistance).

In Japan, under the Act against Unjustifiable Premiums and Misleading Representations (Act No. 134 of 1962), when a prize awarded via a sweepstakes is related to a product purchase, the maximum value of the prize may not exceed JPY 100,000 (approximately USD 700). And in Brazil, sweepstakes can only be run with prior government approval, and a request for authorization must be filed with the Ministry of Finance between forty and 120 days prior to the start of the sweepstakes. Authorizations are granted to Brazilian legal entities only, so a foreign company wishing to offer a sweepstakes in Brazil must establish a business relationship with a Brazilian company. Given these not insignificant requirements, many brands sidestep Brazilian markets entirely.

When running international sweepstakes, it is best practice to provide all promotion materials in the official language of each target country, but there are some countries that have laws requiring you to do so (e.g., Canada (must be translated into French if open to residents of Quebec), Germany, France, Italy, Spain). Also, in some markets the promotion sponsor may be required to pay taxes on the prize pool or withhold taxes from the winner, depending on the country’s laws. Some countries have rules regarding prize fulfillment (e.g., in the Philippines, for prizes that exceed 500 PHP in value (approximately USD 9.00), the winner(s) must be notified via registered mail).

The various countries’ requirements mean that successfully running an international sweepstakes or contest often requires collaboration among legal experts stationed across the globe. To avoid potential pitfalls and navigate the global landscape effectively, legal and marketing teams must remain vigilant and up to date. Quebec, for example, was known for its complicated bond and registration requirements. In recent years, however, it has simplified its rules regarding sweepstakes and promotions. Puerto Rico, too, has also significantly reduced its regulatory requirements. Brand teams that haven’t kept up with these changes could miss what might be big opportunities by erroneously concluding that a given market features legal protocols that have since been mitigated or abolished altogether.

Leaving your data unprotected can cost more than a few emails

Additional legal challenges surround the collection and handling of participant data in international promotions. Since the implementation of Europe’s General Data Protection Regulation (“GDPR”), global privacy standards have tightened. GDPR rules require companies to notify authorities of a data breach within seventy-two hours. Breaches can carry steep fines for violations—as much as EUR 20 million (over USD 23 million) or 4 percent of a company’s global revenue. It’s also important to remember that in the EU, sub-brands are not considered separate from their parent companies. This means that any percentage penalty will be calculated based on the revenue of the whole organization—not just the smaller brand. In other words, the penalty can seem disproportionate if related to a minor/low-profile sub-brand’s data breach.

Where European regulations go, much of the world follows. Led by recent California regulations that mirror GDPR, US-based companies now face GDPR-level privacy standards in markets both at home and beyond the EU. For legal teams, maintaining compliance involves strict adherence to standards for data collection, storage, accessibility tracking, deletion timelines, and backend encryption. Data security isn’t optional; it’s a global mandate, and even a minor misstep can result in reputational and financial damage.

So you’ve picked a winner—now what?

Even after a brand has selected its winners, there are regulations and protocols to follow, and they can vary from country to country. For example, US law permits extensive winner screening, including criminal background checks. Many companies also use what’s colloquially known as a “moral turpitude clause,” which gives them the right to disqualify participants based on specific behaviors or details from their past that could negatively affect the brand.

However, while technically legally compliant, automatically disqualifying a potential prize winner based on a past conviction still may not be prudent as the affected person may claim that the sponsor violated their rights. (Note that a comprehensive background check requires the express written consent of the individual in question.) To mitigate the risk to at least some extent, it is appropriate to explicitly outline the factors that may result in exclusion in the sweepstakes rules. A common option for flexibility is prize modification, such as replacing an in-person meet-and-greet prize with an alternate reward that achieves similar campaign objectives, like a conversation conducted online, or a personalized video.

Regulations regarding the use of a background check may vary globally, requiring completely different approaches to winner verification. Not only must brands adhere to the rules concerning the logistics of sweepstakes and contests, but brands must also align their prize processes with the local laws of each country.

Key takeaways

For lawyers supporting international promotions, consider whether your clients need the following:

• Specialized knowledge: Understanding marketing law within a global context is essential.
• Proactive compliance: Staying ahead of data privacy regulations and adapting to evolving global and local rules ensures smoother execution.
• Local expertise: Collaborating with local experts helps address specific nuances in varied markets.
• Clear communication: Transparent promotional rules prevent misunderstandings regarding winner rights and other important parameters.

If the above sounds daunting, that’s because it can be. Conducting a single promotion across twenty countries may involve more than twenty lawyers worldwide, and missteps can result in heavy fines and lawsuits. Navigating these complexities benefits from a steady hand backed by years of experience and global reach. Experts that specialize in international promotions can help legal teams minimize risks while meeting clients’ marketing goals.

When executed correctly, promotional campaigns provide exciting and impactful opportunities for brands to connect with their audience. Legal teams must understand laws and requirements around the world to follow them appropriately. A brand must never let sweepstakes become a gamble.

At each of the American Bar Association Business Law Section’s spring and fall meetings, the Pro Bono Committee organizes a panel roundtable, featuring local speakers whose pro bono work has a strong connection to the host city. In April, the Committee presented a program at the Spring Meeting in New Orleans focusing on identifying and conquering common impediments to pro bono service. Among the panelists were Kristen Amond, founder of Kristen Amond LLC; Christina (C.C.) Kahr, executive director of New Orleans organization The Pro Bono Project; Chris Ralston, partner at Phelps Dunbar LLP; and George Whipple, member of the board of directors and member of the firm at Epstein Becker Green.

The legal profession, as an independent pillar of American democracy, has always honored its commitment to pro bono services. With the current U.S. political landscape introducing new challenges for lawyers in the pro bono and social impact space, this discussion was invaluable.

The program highlighted the inspirations behind the panelists’ commitments to pro bono services and philanthropy, especially for Louisiana citizens who face not only the familiar issue of funding shortages for civil legal aid and public defender services but also unique challenges due to the constant battle against natural disasters. Ralston, who has offered pro bono assistance in Southeast Louisiana for seventeen years and held leadership positions at several legal aid provider organizations and the Access to Justice Commission, shared his dedication for this work was due to the region’s history of having a significantly high population of people in poverty. Amond, a litigation attorney with strong Louisiana roots, recognized early in her career that “the legal profession is a profession as opposed to an industry,” so a lawyer’s role and responsibility to communities “run deeper.”

At the heart of the discussion was the challenge of identifying and overcoming the impediments for getting pro bono volunteers. Panelists noted that skills building should be a strong incentive for young lawyers to engage in pro bono work because they could develop competency in areas such as client interviewing, gain time in court or exposure to depositions, and learn from other opportunities that may be outside their wheelhouse. One of the greatest obstacles, however, is lawyers lacking a pathway to fully commit to pro bono work in a meaningful way when they are bound by demanding billable hours. Whipple, whose law firm runs a robust pro bono program, leads three family foundations. He advocates for law firms to increase the percentage of billable hours dedicated to pro bono activities and for legal aid provider organizations to provide more transparency regarding expectations and appropriate types of pro bono assignments to ensure lawyers spend a reasonable amount of time to make real, tangible contributions.

Kahr, discussing her leadership at The Pro Bono Project, talked about her partnerships with the legal community to provide aid for Louisianans in need of legal representation. It was here where she witnessed and was “struck by how the legal community could make things happen, could move the needle . . . and the real tangible and pragmatic benefits” that came from this close collaboration. This part of the discussion led to an engaging interaction among those in the room recognizing an untapped demand for transactional lawyers to contribute to pro bono work and that these opportunities are not limited to litigation. For instance, corporate lawyers could help nonprofit organizations, like The Pro Bono Project, to comply with rules and regulations, advise on a wide range of business legal issues, provide helpline assistance, or even offer notary services, without needing to go to court.

The ABA Business Law Section presents the National Public Service Award annually as part of its efforts to recognize significant pro bono legal contributions of law firms, corporate law departments, and individual business lawyers. This year, the Pro Bono Committee proudly presented the 2025 National Public Service Award to two exceptional recipients, Wilson Sonsini Goodrich & Rosati and Tara K. Burke, for their outstanding pro bono contributions. From supporting minority-owned small businesses and nonprofit organizations, to advising social enterprises across Africa and helping secure life-saving healthcare access for veterans, Wilson Sonsini’s global dedication to advancing equity and justice is truly inspiring. Burke, through her leadership in Exponentum’s National Webinar Series and continued service with the Pro Bono Partnership of Ohio, has helped hundreds of non-profit organizations across the country access critical employment law guidance—freeing up their resources to focus on serving their communities.

The next Pro Bono Committee panel roundtable will be held at the ABA Business Law Fall Meeting in Toronto on September 19, 2025.

The panel discussed in this article was moderated by the author, Pam Ly, an ABA Business Law Fellow and Senior Analyst at the Financial Industry Regulatory Authority.

This is the sixth installment in the Year in Governance Series from the In-House Subcommittee of the ABA Business Law Section’s Corporate Governance Committee. Each month, the series will share key tips on a different corporate governance topic. To get involved in the Corporate Governance Committee, please visit the committee’s webpage.

A message from Kathy Jaffari: “As Chair of the Corporate Governance Committee, I would like to extend my sincere appreciation to the authors for this publication. The Corporate Governance Committee has ongoing opportunities for writing and volunteering with various projects, whether it’s an article you want to publish or a CLE that you want to present. Our Committee is dedicated to helping you promote informative resources for corporate governance practitioners. You may contact me at [email protected] to get involved.”

Whether it’s for a regular meeting of a board of directors or a special meeting, a public or private company, a well-crafted agenda provides a road map for your board to be informed, engaged, and strategic. Thoughtful agenda drafting facilitates efficient and productive meetings, limits waste of meeting participants’ time and energy (both in preparation and during the meeting), and ultimately helps your board fulfill necessary governance requirements.

1. Understand the “why”: Each item on the agenda should have a purpose. When planning, ask yourself if the item is for approval, discussion, or awareness. Understanding the “why” behind each item will help you determine the presenters, time allocation, and priority in the meeting flow. In addition, a clear purpose helps directors prepare appropriately in advance and stay engaged during the meeting.
2. Consider the list of attendees: Attendees at each meeting should be carefully selected. Whether attendees are senior leadership, auditors, counsel, board support, or external speakers, their presence should be placed logically and efficiently. It’s important that each attendee add value to the discussion and not just fill a seat—or worse, inhibit discussion. Often topics with guest presenters are scheduled at the beginning of the agenda so they can leave the meeting after their presentation, preserving time for the board to discuss on its own. Also, note who should be in the room when the board is receiving legal advice, as the presence of participants not directly involved in the matter may compromise attorney-client privilege.
3. Prioritize topics: Determine which topics should have priority and how their overall flow impacts the meeting. Strategy, operating results, major investments, and risk oversight are more important topics than routine compliance and governance updates. Place topics that require the most attention within the first hour, when directors are most engaged. Defer routine items to the end of the agenda or to the read-only section. Certain foundational topics should be placed earlier in the agenda if the plan is to build upon the content in later presentations. Often, it’s easier to keep all approvals at the end of the meeting to avoid disrupting the discussion flow.
4. Timing is everything: The time allocated for each agenda item is important. Reserve more time for significant or complicated items, and build in buffers for unexpected discussion. Thoughtful time allocation also helps directors understand the importance of each item from leadership’s point of view. Take learnings from previous meetings and adjust accordingly. If a particular topic consistently runs over, reassess how much time to allocate to the same topic in future meetings. Also, remember that agendas are discoverable documents. Weighty items, like risk oversight, should not be allocated a small amount of time or placed in a read-only section.
5. Review with stakeholders: The board agenda should be previewed with the chairman of the board, and the committee agendas should be previewed with the committee chairs. Additionally, key members of leadership are essential in driving the board agenda, including the chief executive officer and the general counsel and secretary. Each committee also has critical stakeholders to consider: For the audit committee, the chief financial officer and chief accounting officer play significant roles. For the compensation committee, the head of human resources and the head of executive compensation play significant roles. The corporate secretary should ensure that all the right stakeholders weigh in on each agenda as appropriate. Remember to include any external stakeholders as appropriate—for example, independent auditors or compensation consultants—and be sure to start the review process weeks in advance of the scheduled meeting.
6. Make efficient use of a read-only section: Read-only sections are the perfect place to include material that you want your board to know and understand but that does not require a formal discussion. Common items in read-only sections include dashboards, summaries on discrete issues, and background reports. When planning, be sure to remind presenters that they may include material in the read-only section that can supplement the content in their main presentation. Remember to advise directors to read these materials; directors are deemed to have knowledge of these materials if later produced in a litigation or board records request, regardless of whether it was part of the main discussion.
7. Destroy drafts: Agenda drafts are discoverable documents and are typically included in the bundle of documents produced in a stockholder demand for books and records. As a result, it’s imperative that the only version of the agenda discoverable is the final version shared with the board or board committee. If drafts are available and subsequently produced, changes in topics, timing, and participants could lead to incorrect assumptions about why certain items or presenters were changed.
8. Utilize board and committee planners: When crafting agendas, use an annual board or committee planner that can help you visualize the timing of topics throughout the year. Schedule deep dives on important topics like cybersecurity, succession planning, and crisis management purposefully and predictably. This helps set expectations both at the board level and with your senior leaders. Prioritize certain topics over others depending on business needs, requests from directors, or leadership’s preference.
9. Hone descriptions of topics: Agenda descriptions should be precise and simple. Be sure to indicate if an item will require approval. Vague terms like “review” or “update” without an additional description may lead to a disconnect between the presenter and the board. Well-written descriptions enhance transparency and can also help in reviewing corporate records in future years.
10. Note deviation from the agenda in the minutes: Despite a well-planned agenda, it’s natural for changes to happen. For example, a presenter may be running late, so their item is moved to another section of the agenda, or the board decides to skip an item because it wants to allocate more time to another. Changes are fine. However, it’s important to document these changes in the minutes, so in the future, there are no discrepancies between the agenda and the minutes. There should be no room to guess what was discussed, when it was discussed, with whom it was discussed, and for how long, so be sure the minutes capture any changes.

The views expressed in this article are solely those of the authors and not their respective employers, firms, or clients.

The Federal Trade Commission (“FTC”) has agreed to accept the new administration’s first settlement of a merger-enforcement challenge. The settlement includes the divestiture of three businesses and will allow Synopsys, Inc. to complete its $35 billion acquisition of Ansys, Inc.

Although the remedy is consistent with the previously announced remedies accepted by the United Kingdom’s Competition and Markets Authority and the European Commission (“EC”), the consent agreement is notable not only because it is the first of the administration but also because Chair Andrew N. Ferguson’s related statement discusses when this FTC will choose settlement instead of litigation.

The statement points to both practical and substantive factors as guideposts for the FTC’s decisions, including impact of a settlement proposal on litigation, ability to fashion a remedy that is structural (not behavioral), quality of the asset package available for divestiture, and strength of the proposed divestiture buyer.

The Merger

The parties’ product portfolios are mostly complementary. Synopsys largely offers electronic design automation (“EDA”) software, services, and hardware used to design semiconductor devices, such as chips, and offers semiconductor intellectual property. Ansys mostly offers multiphysics simulation and analysis software and services to simulate and analyze the behavior of a product, process, or system using digital models. Some of these EDA tools are used by chip designers. The firms characterized the merger as the logical next step given their history of collaboration.

According to publicly available information, the parties filed the merger notifications in the UK and Europe in November 2024 before filing in the United States on January 29, 2025.

Theories of Harm

The FTC complaint alleges that Synopsys and Ansys are the only two competitors in optical software tools and that the transaction “would give Synopsys the ability to determine input prices for producers of screens, lenses, and mirrors, including automotive, smartphone, camera, and television manufacturers.” With respect to photonic software used for designing and simulating photonic devices, Synopsys and Ansys are head-to-head competitors and view each other as their closest competitor despite the presence of other competitors. Similarly, each party considers the other its closest competitor for Register Transfer Level (“RTL”) power consumption analysis tools, and market participants recognize them as such. For example, Synopsys and Ansys have each innovated their products in direct response to competition from the other.

The Settlement

The UK and the EC provisionally accepted the parties’ proposed remedy on January 8 and January 10, 2025, respectively. Although not yet final because the settlement remains subject to the public comment period, the FTC describes the consent order as “preserv[ing] competition across several software tool markets that are critical for the design of semiconductors and light simulation devices, which are used in a wide range of products.” Specifically, Synopsys will divest its optical software tools and photonic software tools, while Ansys will divest PowerArtist, a power consumption analysis tool. The settlement will also require the companies to provide a “limited amount” of technological support and transition services to the divestiture buyer so that it can immediately compete with the merged company.

FTC Chair Ferguson issued a statement, which was joined by the two other commissioners, to explain his views on the role that remedies should play. Key points of the statement include the following:

• Litigation is the only tool that the agency has to prevent anticompetitive acquisitions.
• Although, in the past, not all merger remedies have been effective, they must be an option for the FTC.
• Only settlements the agency believes are certain to address the proposed transaction’s anticompetitive effects are acceptable.
• The commission intends to publish a policy statement on its understanding of the role of remedies.

The statement indicates the agency should not disregard proposed settlements that would address a merger’s competition problems, because the parties can present that settlement as a remedy to the court during litigation. Courts often consider whether the proposed remedies would alleviate the competition concerns raised by the challenged transaction. Chair Ferguson acknowledges that even inadequate settlement proposals can complicate the agency’s litigation efforts and substantially increase its risks. To avoid relegating the judgments about the acceptability of remedies to the parties to the transaction and the courts, the FTC will not preclude the potential for consent agreements such as that proposed by Synopsys and Ansys.

Additionally, given the expense and staff time necessary to litigate antitrust cases, refusing to settle merger cases unnecessarily limits the impact that the FTC can have with its finite resources.

The statement also makes clear that the agency should only accept settlements when it is confident that the settlement will protect competition “to the same extent that successful litigation would.” As with prior administrations, behavioral remedies will be disfavored in merger matters. Also, structural remedies should typically involve the sale of a standalone or discrete business and all tangible and intangible assets necessary (1) to make that line of business viable, (2) to give the divestiture buyer the incentive and ability to compete vigorously against the merged firm, and (3) to eliminate to the extent possible any ongoing entanglements between the divested business and the merged firm. The agency needs also to be confident that the divestiture buyer has the resources and experience necessary to make the business competitive.

Although the statement acknowledges that “settlements, where they resolve the competitive concerns that a proposed transaction creates, save the commission time and money that it can then deploy toward other matters,” Chair Ferguson explains that he would favor litigation over an uncertain settlement.

In recent years, there has been a surge in use of cooperation agreements (“Coop Agreements”) in US restructurings. This article provides a high-level overview of basic terms and trends with respect to Coop Agreements. The dramatic increase in use of Coop Agreements by ad hoc groups of lenders has arisen primarily as a reaction to excluded lenders being caught on the wrong end of a non–pro rata liability management exercise (also known as “creditor-on-creditor violence”). Liability management exercises (“LMEs”) often result in significant disparity of returns for lenders participating in the LME versus nonparticipating lenders, thereby creating an incentive for lenders to not be excluded from an LME.

An LME generally refers to a transaction whereby a borrower/sponsor and certain lenders take advantage of loose loan document provisions to create liquidity, often to the detriment of nonparticipating lenders. The two main types of LMEs utilized are (i) drop-down transactions (whereby key assets are moved into unrestricted/nonguarantor entities, followed by new financing secured by those assets); and (ii) uptier transactions (whereby a subset of lenders elevate their position over other lenders, often evading requirements for pro rata sharing through utilization of an exception).

Coop Agreements have become an integral tool used by ad hoc groups of lenders within a syndicate to protect themselves from being excluded from a potential LME. At their core, Coop Agreements are agreements among an ad hoc group of lenders (each a “Coop Party”), in which such Coop Parties unite with the goal of obtaining a favorable restructuring transaction with a stressed or distressed company to restructure the company’s indebtedness. The key component of Coop Agreements is providing pro rata treatment on the underlying, ultimate transaction among the participating Coop Parties. Hence, lenders may become a party to the Coop to minimize their downside risk of being an excluded lender and receiving non–pro rata treatment.

Coop Agreements often act as a foundational step upon which an LME transaction is devised and will position Coop Parties to negotiate directly with a stressed borrower. Oftentimes the net result of a Coop Agreement is the consummation of an out-of-court transaction support agreement or an in-court restructuring support agreement. Typically, a Coop Agreement will only become effective once the Coop Parties hold a majority of the underlying debt of the borrower. Holding a majority of the debt ensures that the Coop Parties will have “requisite” creditor control under the loan documents to facilitate an LME with the borrower (including potential amendments to underlying loan documents). It is important to note that Coop Agreements are only among creditors—the borrower does not sign the Coop Agreement. This ties into the construct that once the Coop Parties hold a majority of the debt, such parties will be well positioned to negotiate with the borrower.

Under a Coop Agreement, a Coop Party agrees not to enter into a transaction with the borrower away from the other Coop Parties. Once a Coop Party signs onto a Coop Agreement, then any potential transaction to be entered into with the borrower by such Coop Party must be offered to the rest of the Coop Parties for so long as such party is subject to the Coop Agreement. However, entry into a Coop Agreement does not require a Coop Party to participate in an ultimate transaction approved by such group with the borrower. Thus, if you are a party to a Coop Agreement but do not like a transaction proposed by the majority of the group under the Coop Agreement, you are typically not required to participate in such transaction.

To restrict the effect of a Coop Agreement, some sponsors have tried inserting restrictions in loan documents prohibiting creditors from joining Coop Agreements. To date, the author believes most sponsor efforts to insert prohibitions against lenders’ forming cooperation groups have been successfully resisted. However, lenders should continue to be on the lookout for provisions inserted by aggressive sponsors trying to limit the ability of lenders to form cooperation groups.

Coop Agreements typically include transfer restrictions ensuring that, if a Coop Party sells or transfers its debt, the transferee (i) is already a Coop Party; (ii) executes a joinder; or (iii) is acting as a qualified market maker. These restrictions ensure that if a Coop Party exits its position, the Coop Parties in the aggregate maintain the requisite “required holders” status necessary to make amendments to facilitate an LME.

It is important to recognize that not all Coop Parties are treated equally. Coop Agreements often differentiate between “initial parties” and “subsequent parties,” and the economics for each may be materially different. Generally, an “initial party” receives both (i) its pro rata share of the underlying economics of an ultimate transaction (e.g., if the ultimate transaction allows a Coop Party to sell its existing debt to the company for senior priming debt at a rate of 75 percent, then a signatory with a $100 existing claim can sell its $100 claim for $75 of priming debt); and (ii) the right to participate pro rata in any new money financing, backstop, and related premium and fees. In contrast, a “subsequent party” may only receive its pro rata share of the ultimate transaction. Nonparties may also be offered the opportunity to exchange their debt, albeit at a lower exchange rate than initial parties or subsequent parties. Hence, you often have three levels of recovery in an LME emerging from a Coop Agreement: (i) initial parties (who get the best recovery); (ii) subsequent parties (who get the second-best); and (iii) excluded parties (who get the worst).

The considerations discussed in this introductory article are intended to provide a basic high-level primer for those who are not familiar with Coop Agreements. Any potential signatory to a Coop Agreement should carefully review the underlying terms to ascertain the implications for its particular situation and potential recovery and should consider seeking experienced independent counsel to assist in such determination.

Artificial intelligence (“AI”) is a rapidly evolving field focused on developing machines capable of performing tasks that traditionally require human intelligence. These tasks include learning, problem-solving, reasoning, perception, and language understanding. Not all AI systems are equal, as they vary in complexity and functionality, and some AI systems have existed for years yet only now are receiving the attention they deserve.

AI has become an integral part of everyday life, utilized in appliances, vehicles, mobile phones, and various software applications, and it is directly accessible to consumers via the web. However, despite AI’s accessibility, its capabilities are poorly understood by the general public. In the legal field, due to AI’s widespread integration into various systems—whether for personal use, employee applications, or client interactions—it is crucial to understand how AI operates, appreciate its benefits, recognize its inherent legal and corporate compliance risks, and master risk-mitigation strategies for AI use in this brave new world.

How AI Works

The primary categories of AI systems include rule-based AI, machine learning, deep learning models (“DLM”), natural language processing (“NLP”), generative AI, and reinforcement learning models. To better understand considerations for AI use and discuss them with more nuance, it is helpful to distinguish between these foundational models.

• Rule-based AI follows a strict “if-then” decision-making system. Commonly seen in customer service chatbots, it operates based on predefined instructions, much like a flowchart or recipe, where a specific input triggers a set response.
• Machine learning identifies patterns in data and improves its decision-making over time. Netflix’s recommendation system, for example, uses machine learning to refine content suggestions based on user preferences and viewing history.
• Deep learning models (DLM) are an advanced form of machine learning that mimics human brain functions to process information. Tesla’s Full Self-Driving and Autopilot features utilize DLM to analyze real-time road conditions and improve driving performance with experience while connecting to a central hub or technological brain center.
• Natural language processing (NLP) enables computers to understand and respond to human language, both spoken and written. Virtual assistants like Siri and Alexa rely on NLP to interpret questions and provide relevant answers.
• Generative AI creates new content, such as text, images, or music, based on patterns learned from existing data. For example, ChatGPT generates human-like responses, while AI-powered art programs, like Midjourney, produce original visual content.
• Reinforcement learning operates on a reward-and-penalty system, much like training a dog. These AI models learn through trial and error, improving their decision-making based on feedback.

For this article’s purposes, we will focus on next-generation models that meet the minimum thresholds of NLP and generative AI. Specifically, we will examine hybrid AI models in corporate settings, such as recurrent neural networks, convolutional neural networks, and transformers / large language models like ChatGPT.

Benefits

AI’s applications extend far beyond grammar correction and content summarization. Hybrid AI models are increasingly embedded in corporate environments for applications such as quality control, e-discovery, document review, risk mitigation, recruitment and onboarding, and fraud detection. Businesses leverage AI to ensure compliance with international laws, local regulations, and internal policies. Pain points and gaps within preexisting policy or regulations also become minimized as AI can detect and provide supplemental standards while simultaneously enhancing efficiency. AI is also used to identify trends and calculate statistical probabilities within complex datasets.

The rapid integration of AI into corporate settings is accelerating, with no signs of slowing down. Those in the legal profession have numerous opportunities to capitalize on AI’s capabilities, making it essential to understand where and how AI operates within the profession.

Risks and Legal Considerations

Despite AI’s benefits, significant risks accompany its use. Bias and legal concerns can arise from the data sources used to train these complex models. Limited or siloed training datasets can create inherent biases, leading to skewed outputs. For example, if historical data used to develop an AI model lacks diversity, the AI will reflect those limitations in its responses. Even open data reservoirs connected to the web can introduce inaccuracies or misinformation. Additionally, models trained on copyrighted or proprietary materials pose risks of intellectual property infringement and accidental plagiarism.

Authentication has grown far more difficult as these AI-based systems have advanced, allowing malicious actors to capitalize on the authentication gap and simultaneously allowing the opening of doors for other evasive tactics. For example, AI can be exploited to create or mimic contracts, agreements, and other legal or company documentation. Misinformation and deepfake technology present additional high-risk threats. AI can generate fraudulent press releases, create bots to plague corporate social media accounts, produce fake customer reviews, and create voice-cloned content—leading to financial and reputational damages.

Legal cases such as Thomson Reuters Enterprise Centre GmbH v. Ross Intelligence Inc.^[1] have set groundbreaking precedents regarding the application of copyright laws in AI training. In a decision in this case in February, for the first time, a court declined to allow the application of the fair use doctrine to AI-produced outputs related to use of copyrighted original content. As the judiciary undergoes internal struggle in applying case law and regulatory standards to AI-related cases, which may not smoothly fit the historical mold, attorneys need to pay attention to new judicial interpretations of historically tested case law and statutes.

AI’s presence has not only rocked the judiciary but has also changed the way that lawyers conduct their own work, raising practical and ethical concerns about the usage of AI in the legal industry that have been discussed in ethics opinions or guidance from the American Bar Association and many state bars. Two key examples:

• Lawyers are using generative AI to submit briefs, some of which have contained AI hallucinations—that is, citations of cases that never existed. This has resulted in numerous sanctions and efforts by the judiciary to address lawyers’ misuse of AI.
• Lawyers are leveraging AI to prepare privilege logs, creating a potential scenario for inadvertently disclosing privileged information when they feed sensitive data into AI systems. Courts have raised confidentiality and ethical concerns over this practice.

Ethical and confidentiality concerns exist not only in the courts but also at varying corporate levels. With generative AI providing content, we have started to see major challenges to authorship and ownership rights. Furthermore, the information kept and stored by companies and how AI and/or the corporations use that information can also begin to blur our traditional understandings of corporate liability and responsibility.

Legal Hypotheticals

Two legal scenarios can help illustrate AI’s complexities:

1. The Black Mirror Conundrum. A company’s terms and conditions grant it extensive rights over user data, including the ability to create AI-generated content based on customer likenesses and behaviors. This raises questions about disclosure sufficiency and the legality of profiting from personal data.
2. The Double Cross. A fraud protection company uses client data to enhance its AI algorithms across multiple banking customers. This scenario raises questions as to whether such data usage violates contractual agreements, whether AI-generated insights constitute proprietary content, and whether or not there is a clear divide between original source data to train AI models and the output data that the models create.

These hypotheticals highlight the risks of AI by questioning the legality of using customer/consumer data to produce content that the business uses for its own purposes, whether for pecuniary gain or not. They also bring attention to ethical and contractual implications of leveraging client/employee data to enhance AI models across multiple entities. Most importantly, these hypotheticals bring to light the numerous legal gray areas that we may soon have to navigate—and that some already are navigating.

AI Risk-Mitigation and Forensic Considerations

It is critical for businesses to know how AI works before they begin to leverage it. However, the controls in place to govern its use are just as important. Leveraging AI can enhance productivity and innovation; however, it also introduces new risks that must be proactively addressed. To that end, robust governance frameworks are crucial to mitigating unauthorized or unethical AI usage.

Businesses can significantly reduce exposure to AI-related risks by implementing comprehensive compliance measures, such as Employer Device Management (“EDM”) and Mobile Device Management (“MDM”) systems. These technologies enable organizations to regulate access to AI tools and third-party applications across various devices—including computers, tablets, and mobile phones. With customizable access controls, companies can restrict usage to approved platforms and simultaneously monitor user activity beyond corporate domains, ensuring traceability and accountability.

In the event of litigation or internal investigations, these systems facilitate efficient application of legal holds and data recovery processes. By maintaining control over corporate and employee-owned devices, EDM and MDM technologies allow for secure data preservation while minimizing the need for costly and time-consuming physical device collections. Importantly, they also support privacy-preserving mechanisms, balancing investigative needs with employee data protection.

For organizations lacking centralized device management infrastructure, it is imperative to understand where AI-related data may reside. Beyond conventional storage mediums—such as hard drives, flash drives, and solid-state drives—many AI platforms store user queries and interactions in the cloud. While access to this data often requires user logins, some platforms allow anonymous interaction, complicating attribution. In such cases, forensic examiners rely on alternative artifacts including browsing histories, system activity logs (e.g., file creation, copy and paste events), and audit trails to trace AI usage. These indicators, recoverable through forensic imaging, can include both active and deleted data depending on the scope of forensic acquisition.

It is also critical to recognize that AI itself is not inherently harmful. Risk arises from its misuse, lack of oversight, or uninformed application. Therefore, alongside technical controls, companies must foster a culture of ethical AI use through clear policies, continuous education, and employee accountability. Developing and disseminating AI-specific training programs empowers employees to understand not only the functional aspects of AI but also the ethical, legal, and business implications of its use. Such training should cover topics including data privacy, intellectual property considerations, acceptable use, and bias mitigation. Ethical use agreements and internal awareness campaigns can further reinforce responsible behavior, placing shared responsibility on both the organization and its workforce.

On the reactive side, companies must be prepared to respond swiftly to potential incidents. Utilizing the Electronic Discovery Reference Model (“EDRM”), organizations can deploy litigation holds and document preservation strategies with minimal disruption. Digital forensic techniques complement these processes by enabling thorough investigations through metadata analysis, device event tracking, and the use of AI-detection tools such as GPTZero. Because AI-related content can be distributed across cloud storage, application logs, system metadata, and multimedia artifacts, a multidirectional forensic approach is essential for comprehensive risk assessment and incident resolution.

Effective AI governance demands a combination of proactive policies, technical enforcement, employee education, and forensic readiness. By integrating these components, businesses can harness the benefits of AI while safeguarding against its potential misuse.

Conclusion

AI presents both opportunities and challenges across various industries and legal spaces. While it enhances automation, decision-making, and efficiency, it also introduces legal, ethical, and security risks that organizations and the judiciary must address. If businesses and the legal profession are constantly playing catchup to technological advances such as AI, they inherently lose sight of laying a sound foundation to govern their use. By implementing strict compliance policies, monitoring AI-generated content, and staying informed about evolving legal frameworks, businesses can work to harness AI’s potential while mitigating its inherent risks. As we look to the future, our considerations should focus on responsible usage, not exclusion. Understanding where and how to engage AI will effectively pave the road for businesses to ethically exploit AI in a safe and responsible manner.

This article is related to a CLE program titled “Forensic, E-Discovery, and Legal Compliance in the Brave New World of AI” that took place during the ABA Business Law Section’s 2025 Spring Meeting. To learn more about this topic, listen to a recording of the program, free for members.

1. No. 1:20-cv-613-SB (D. Del. Feb. 11, 2025); see also Thomson Reuters Enter. Ctr. GmbH v. Ross Intel. Inc., No. 1:20-cv-613-SB (D. Del. May. 23, 2025) (highlighting the importance and difficulty of legal questions about AI’s copyright implications when certifying the case for interlocutory appeal). ↑

During the Clinton administration the U.S. Congress passed the Helms-Burton Act, also referred to as the Cuban Liberty and Democratic Solidarity Act of 1996. Title III of the Act permits U.S. citizens and corporations whose property was confiscated by the Cuban revolutionary government that took power in early 1959 to sue defendants profiting from their property. Title III did not go into effect immediately; its terms gave the president the discretion to suspend or activate it. In May 2019, President Donald Trump activated Title III for the first time in its history. An Eleventh Circuit decision in North American Sugar Industries, Inc., v. Xinjiang Goldwind Science & Technology Co. (No. 23-10126, slip op. (11th Cir. Jan. 2, 2025)) is one of a number of notable decisions in the lawsuits that have ensued since.

North American Sugar Industries, Inc. sued five defendants under Title III of the Helms-Burton Act, accusing them of “trafficking” their confiscated property. Three of the five defendants are corporations from East Asia—a Chinese wind-energy company and one of its subsidiaries (collectively, “Goldwind”), and BBC Chartering Singapore Pte Ltd.; DSV Air & Sea, Inc., is a Delaware corporation with its principal place of business in New Jersey; and BBC Chartering USA, LLC, is a Texas corporation with its principal place of business in Texas.

None of the defendants are Florida corporations. However, North American Sugar began this action in the U.S. District Court for the Southern District of Florida because, allegedly, the defendants participated in a conspiracy that “involved Helms-Burton trafficking from China, through Miami, Florida, and then to Puerto Carupano, Cuba.” The defendants moved to dismiss for lack of personal jurisdiction, which was granted. North American Sugar appealed to the Eleventh Circuit, which reversed and remanded on January 2, 2025.

When the revolutionaries seized control of the Cuban government on January 1, 1959, North American Sugar was one of the largest sugar producers in the world, with a large commercial shipping port in Puerto Carupano, Cuba. On July 20, 1960, the Cuban government confiscated the port and other properties. The Cuban government uses Puerto Carupano for its own activities.

North American Sugar is a New Jersey corporation. It filed a claim for its losses from the confiscation with the Cuba Claims Program of the U.S. Foreign Claims Settlement Commission (“FCSC”). In 1969, the FCSC certified a loss of over $97 million from the confiscation. Under the Helms-Burton Act, the FCSC’s certification of a claim is “conclusive” as to ownership and presumed correct as to value.

In order to ship certain products to Cuba that contained parts made by a U.S. company, the defendant East Asian companies Goldwind needed U.S. government export licenses. They concocted a plan to ship from Asia to Miami and then to Cuba. By transshipping the products through Miami, they received the U.S. government licenses—and, North American Sugar argued, triggered personal jurisdiction in Florida.

North American Sugar presented evidence that at least one defendant, DSV, engaged in trafficking activities in Florida, as follows: DSV’s Miami office was involved in planning the stops of two ships in Miami. DSV sent many emails about the Miami stops to Carol Scheid, DSV’s Miami-based customs broker. DSV documents related to the Goldwind companies shipments listed DSV’s Miami office as the source of the documents, with the DSV Miami office address and telephone number.

The Court of Appeals wrote that to the extent “the plaintiff’s complaint and supporting evidence conflict with the defendant’s affidavits,” the district court was required to “construe all reasonable inferences in favor of the plaintiff,” which it did not.

In addition, because North American Sugar alleged all the defendants participated in a conspiracy, Florida’s long-arm statute conferred personal jurisdiction over the BBC and Goldwind defendants even if none of them personally acted in Florida. Quoting an earlier case, the Court of Appeals noted, “Florida’s long-arm statute can support personal jurisdiction over any alleged conspirator where any other co-conspirator commits an act in Florida in furtherance of the conspiracy, even if the defendant over whom personal jurisdiction is sought individually committed no act in, or had no relevant contact with, Florida.”

Defendants in this case needed the merchandise to be transported through Miami on the way to Cuba in order to obtain the necessary U.S. government permits. However, by putting Florida into the picture they made themselves subject to the Helms-Burton Act inasmuch as part of the “trafficking” occurred on U.S. soil and subject to U.S. courts.

Challenges of Succession Planning

Succession planning is an inherently complex process that requires owners’ attention to their businesses’ immediate and long-term needs. This complexity is often more acutely felt in smaller professional firms that have limited financial resources and less bandwidth to dedicate to long-term strategic planning.

Smaller firms frequently encounter unique problems in their succession planning process. They are not always able to rely on financing mechanisms such as life insurance, retirement plans, or sinking funds, which are so often used by larger firms. They tend to be built around the individual preferences and relationships of their partners. Their methods of operation, compensation, and profit distributions frequently vary from year to year and are often adjusted based on isolated, nonrecurring events rather than consistent policies.

Beyond operational hurdles, firms navigating succession planning must also address the complexities related to valuation. Unlike other business entities, where value might reside in retained capital or tangible assets, the true worth of most professional firms lies in their client base and reputation, the skills of individual partners, and their potential to generate future revenue. This lack of tangible assets makes valuing a small or mid-size professional firm inherently more challenging, particularly when comparable transactions or multiples of value—common in large, publicly traded companies—are unavailable. For this reason, smaller firms tend to rely on one-time, arbitrary values for individual transactions. While such tactics allow small firms to be nimble, they hinder the development of consistent, methodical approaches to partner buyouts. They can also strain the firm’s finances, especially when payments to the departing partner are derived entirely from the firm’s future earnings.

A struggle common to all professional service firms, regardless of their size, is taxation. The choice of buyout structure (direct sale of the departing partner’s interest to other partners versus redemption by the firm of the departing partner’s share of total assets) impacts the tax outcomes and creates conflicting interests for the parties involved. An additional tax impact arises when the buyout includes payments for the departing partner’s share of goodwill or accounts receivable, as such payments trigger the recognition of ordinary income for the departing partner rather than the more favorable capital gain.

Without methodical preparation and thoughtful structuring of the underlying legal transaction, a partner’s departure or retirement can become a disruption that negatively impacts the firm’s financial stability and long-term prospects. Yet, despite being aware of these challenges, many firms still neglect to address them proactively. Partnership agreements, particularly those adopted early in the firm’s operation, often prioritize immediate concerns, such as management and profit-sharing, over the seemingly less pressing issues of partner withdrawals. Additionally, many buyout provisions lack the specificity and flexibility required to generate sufficient liquidity for the firm to fund a partner’s buyout.

This article provides an overview of the most popular buyout approaches that facilitate partner transitions. This overview does not address the tax issues surrounding each type of buyout or the valuation and accounting implications of the selected approach. The terms “partnership,” “partner,” “partnership agreement,” and “interest” are used generally and do not imply a specific legal or tax classification of a professional services firm.

External Financing

External financing (e.g., bank loans, lines of credit, or loans from specialty finance companies focused on professional services) to fund a partner buyout offers several key advantages, primarily centered around providing immediate capital and financial stability for the firm. Outside funding avoids the uncertainty associated with dependence on the firm’s future performance and allows it to continue its operations without depleting its cash reserves. These reserves can instead be utilized for other purposes, such as investing in essential technology upgrades, hiring key personnel, or pursuing initiatives that accelerate the firm’s growth.

Another significant advantage of external financing is a clean separation between the firm and the departing partner. The retiring partner has immediate access to funds, while the firm benefits from a complete disengagement of the departing individual from the firm’s ongoing operations.

One of the primary drawbacks of external financing is its substantial long-term cost. Some loans may contain less than favorable financing terms, including personal guaranties or shorter repayment periods. Restrictive covenants such as limits on future debt, capital expenditures, or partner distributions may constrain the firm’s operational decisions and impair its creditworthiness. Many traditional banks hesitate to offer partner buyout loans due to the lack of tangible collateral. Finally, the time-consuming process of a lender’s due diligence review might not align with the desired timeline for a partner’s departure. As a result, many firms may have no choice but to fall back on other arrangements.

Payment in Installments

Payment in installments is the simplest and, thus, most frequently used mechanism for all types of buy-sell arrangements. Professional services firms usually fund partnership redemptions from their ongoing revenue streams rather than accumulated capital. Payment in installments mitigates the financial strain on the firm by avoiding immediate cash outflows that could disrupt operations or hinder growth. The firm’s obligations are evidenced by a promissory note detailing the payment amount and terms, such as interest rate, payment schedule, and maturity date. The note can be secured to provide the departing partner with recourse if the firm defaults. Common security arrangements include:

• a pledge of the stock or membership interest purchased from the departing partner
• personal guarantees of the remaining partners
• liens on specific assets such as real estate or significant equipment (less common in the context of professional service firms, which typically do not possess substantial tangible assets)

The firm can use various approaches to manage its debt service and cash flow during the note repayment period. These include a cap that limits the total annual payout or a payment suspension clause, which permits deferral of principal payments during periods of economic downturn. Any amount that the firm cannot pay in a single year due to the cap or suspension would be rolled forward to the following year. Other details that the parties should address when using such arrangements include triggering conditions (e.g., a drop in revenue below a specified threshold), the duration of the relief period, the applicable interest rate, and the method for making up missed payments.

Payment in installments enhances a firm’s financial stability. Through proper cash flow planning and allocating a certain percentage of the firm’s revenue toward the buyout payments, the partners can neutralize the effect of unexpected difficulties, allowing the firm to navigate periods of financial hardship without default.

Earnout Arrangements

An earnout is a form of deferred payment that the seller receives from the buyer only when specific performance targets are met post-closing. In a scenario involving a partner’s buyout, the selling partner agrees to make a portion of their payout contingent on the firm’s future performance.

Earnouts are especially effective when the firm’s future financial performance is uncertain or when the departing partner’s continued involvement, even if temporary, is critical for the firm’s ongoing success, for example, to facilitate the transition of key client relationships or preservation of institutional knowledge. Partners who are compensated in the form of an earnout often stay with the firm in a part-time, consulting, or support role to ensure seamless handover of responsibilities and help maintain the firm’s stability during the transition.

Earnouts are also attractive for other reasons:

• They offer financial flexibility because a portion of the payment is tied directly to the retained revenue or profit of the firm. Such an arrangement protects the firm if client retention or revenue drops significantly after the transition.
• They help reconcile differing opinions between the departing partner and the firm on the value or prospects of the business.
• If the firm performs well, the departing partner may earn more than a fixed buyout price that might have been offered in the absence of an earnout.

In a typical earnout arrangement, the departing partner receives an initial portion of their payment in cash upfront. This payment partially mitigates the risk associated with the contingent payout. The firm’s achievement of the agreed-upon performance metrics triggers payments of the remaining balance during the earnout period, which typically lasts from one to five years. The length of the earnout period depends on factors such as the stability of the firm’s business, the time required to transition client relationships, the role of the departing partner, and the complexity of the chosen metrics. For instance, a firm with stable, predictable revenue might opt for a shorter timeframe than one with volatile, project-based income.

Commonly used performance metrics include revenue and profitability targets. Revenue targets can be based on the total revenue generated by the firm, revenue from the departing partner’s practice area, or revenue from specific client accounts historically managed by the departing partner. Revenue targets are popular because they are relatively simple to use. However, they do not reflect the actual profitability of the firm because they account for total income before expenses.

Profitability targets, on the other hand, better reflect the firm’s overall financial health and ability to pay, as metrics such as EBITDA, net profit, or profit per partner are directly linked to the firm’s bottom line. Another common metric is client retention, where payments are contingent on retaining a certain percentage of key clients associated with the selling partner for a specified period. Nonfinancial metrics are used less frequently, typically when the partner’s continued involvement is critical for achieving a specific strategic goal, such as securing a major contract, successfully integrating a practice group, or closing a joint venture deal.

Metrics used in earnout provisions should be objective, measurable, and based on reasonable assumptions and realistic projections. For any metrics to work effectively, they should be structured to prevent artificial inflation or deflation of expenses by addressing details such as the treatment of extraordinary expenses, intercompany charges, or changes in accounting policies. Simple calculations based on readily available data are preferable because they reduce the potential for manipulation or misinterpretation.

The parties can structure an earnout payment as a fixed amount, a percentage of the target achieved, or an agreed-upon formula that will be paid in periodic installments or a single lump sum at the end of the earnout period. To manage risk, the departing partner may (and should) insist on receiving a minimum guaranteed earnout payment (a “floor”). Conversely, the firm may seek a maximum payout limit (a “cap”) to avoid unexpectedly large payouts due to unforeseen successes potentially unrelated to the departing partner’s contributions.

Other protections for the departing partner include:

• extension of the earnout period if the guaranteed minimum is not met within the original timeframe due to specific, predefined circumstances
• acceleration that requires immediate payment of the remaining potential earnout or guaranteed floor upon certain events, like a change in control of the firm or the departing partner’s death
• audit rights preserving access to the firm’s books and records to verify the calculation of the performance metrics and dispute resolution methods for resolving disagreements on the payout calculation

Earnouts are not without drawbacks. Their contingent nature makes them a less desirable solution for buyouts related to retirement, where a departing partner seeks financial certainty and disengagement. They expose the departing partner to a significant risk by tying the payout to the firm’s future performance, which the partner no longer controls. External factors, regulatory changes, serious mismanagement, or strategic shifts by the remaining partners could all jeopardize the earnout payment. Nevertheless, earnouts are often the only viable method for providing buyout funding in smaller firms.

New Partner Buy-Ins

Another strategic approach to funding a partner buyout involves bringing in a new partner, either through an internal promotion or external hire. This new partner purchases the departing partner’s equity interest. This strategy provides both a funding source for the buyout and an opportunity for the firm to inject new talent, specialized expertise, or valuable client relationships into the firm. The new partner’s buy-in is especially attractive for businesses looking to grow new practice areas or expand their service offerings. However, this approach may significantly impact the firm’s ownership structure, culture, and internal dynamics and, as such, requires careful planning and execution.

The process of admitting new partners involves several key steps. First, the partners must identify potential candidates, assess their alignment with the firm’s culture, and perform any necessary due diligence. Next, they need to determine the value of the departing partner’s equity interest and structure the corresponding buy-in payment. Valuation methods vary widely and might include formulas already defined in the partnership agreement (e.g., based on book value, multiples of revenue or earnings, or a fixed amount) or an independent third-party valuation.

The buy-in payment may reflect only the value of a percentage interest in the business or might include a corresponding capital contribution or a pro rata buy-in for the new partner’s share in unbilled work in progress and accounts receivable. Since paying the full purchase price in cash can be a barrier for younger partners, many firms allow new partners to pay for their equity stake over time, typically through deductions from their future profit distributions or compensation.

New partner admission typically requires the consent of all (or a supermajority of) the remaining partners. Securing this consent can be a hurdle, especially if the admission significantly shifts governance control, decision-making power, strategic direction, or profit distribution formulas in ways that make some existing partners uncomfortable. Once consent is received, the partnership agreement is updated to reflect the agreed-upon terms, including the new partner’s initial capital contribution (if any, beyond the equity purchase), percentage of ownership, voting rights, profit and loss allocation, distribution entitlements, and specific roles and responsibilities within the firm.

New partner buy-ins can be highly complex, especially for firms with tiered partnerships, complex capital accounts, vesting schedules, and mandatory retirement policies. Despite these potential complexities, a well-crafted approach can deliver a fair and balanced result for all parties while facilitating a smooth transition.

Best Practices

The goal of succession planning is to ensure smooth, fair, and predictable ownership transitions based on objective parameters. To achieve this goal, professional services firms should adopt best practices when designing partner entry and exit strategies.

The first and most critical step is developing a comprehensive partnership agreement. This agreement should clearly outline triggering events for withdrawals (retirement, death, disability, voluntary departure, termination for cause), funding sources, and procedures, including advance notice requirements, clear valuation methods, and payment terms. Other important provisions include terms for new partner admissions and, where applicable and legally permissible, noncompete, nonsolicitation, and nondisclosure covenants restricting the departing partner.

Partners should periodically review and update the partnership agreement—for example, every three to five years or upon significant changes—to reflect evolving business circumstances, partners’ expectations, and legal and regulatory requirements.

However, a robust agreement alone is not sufficient to successfully navigate partnership transitions. Professional services firms should treat succession planning as an ongoing strategic process rather than a reaction to a partner’s imminent departure. Mentorship, talent development, open communication, and collaboration among partners regarding terms of transition are key to minimizing conflicts and building consensus. Experienced tax, legal, and financial advisors specializing in professional service firms can help design, draft, and implement exit and buy-in strategies that are legally sound, financially viable, and tax- efficient and thus protect the interests of all parties involved. By proactively addressing these elements, professional service firms can navigate partner transitions more effectively, preserving the stability of their firm and setting the stage for future success.