What is a Practice Continuation Agreement (PCA)?

A Practice Continuation Agreement (PCA) is an agreement that has its intent founded in the desire to provide, or receive, back-up and support and possible succession under difficult circumstances most often associated with the death or disability of an owner or partner.

A PCA is an agreement that details the who, how, when and where in the event of an unforeseen circumstance. A PCA must often be more detailed than a succession plan because the need to "activate" the PCA is mostly because the practitioner is incapable of providing assistance, advice or counsel due to death or disability. This is not always the case as some disabilities do not necessarily prevent a practitioner from providing advice or counsel but a good PCA needs to be written and executable as if this will be the case. Because of this fact the PCA is a much more involved agreement and requires constant updating as there can be changes in any firm on a regular basis. The PCA partner providing the backup service must be kept informed of these changes as he or she will not have the opportunity to figure things out in casual and relaxed time.

Everyone that enters into a PCA should consider this a legally binding agreement, regardless of whether you are the professional seeking the backup and support or the professional offering the backup. If you are the professional offering the support it is also important to consider your liability in the event you cannot provide the backup at the time it is needed. Remember if you signed an agreement to provide backup or support you now have a legal obligation to do so. We will discuss later in this PCA module some of the reasons you may want to agree to provide the backup and support. We will also discuss what the practitioner must provide to equitably compensate if he or she is seeking the backup and support.

We have read many articles that declare a PCA enables a professional to transfer their practice, in the event of an unforeseen circumstance, and receive "full value". We do not agree with this statement at all. To explain why we take exception let us ask a simple question If you were the professional offering support and backup and your PCA partner suddenly died are you going to give them "full value" without factoring the disadvantage of no transition or retention assistance? Most will not. It does not mean that value should be determined based on a preconceived notion of client attrition, it simply means there needs to be a fair and equitable manner to author the PCA itself. We will also discuss this more in the following sections.

For more information:

• Who Would Run Your Firm? Journal of Accountancy, c2011

Return to M&A FAQ