Our firm is a six-lawyer family law firm located in the Chicago suburbs. There are two equity partners and four associates in the firm. Approximately five years ago the founder of the firm decided to retire and he sold the practice to myself and another associate in the firm. We just finished making our last payment at the end of last year. We have an associate that we do not want to lose and he has inquired about his future with the firm and partnership. He has been with the firm for two years. My partner and I are considering offering him a partnership interest but do not know where to start. Any suggestions that you have would be appreciated.
The two of you should start by asking yourselves the following questions:
- Are you really ready for another equity partner in the firm?
- What criteria do you believe entitles one to become an equity partner?
- Should client origination at some level be a prerequisite for partnership?
- What production criteria should be a prerequisite for partnership?
- Are you willing to give up control? To what extent?
- Will the new partner have an equal partnership ownership interest or a minority interest?
- Will decision-making be based on percentage of ownership or one-partner-one vote? Will this be the case for all management decisions or just some decisions?
- Will you require a buy-in and in what form?
- What expectations do the two of you have regarding buy-outs when you retire or otherwise withdraw from the firm?
- Will you continue with the compensation system in place for partners or will you need to consider a different approach?
The majority of firms that I work with regardless of size have a non-equity/income partner tier that an associate advances to prior to being considered for equity partnership. This gives associates the feeling of career progression, the title of partner which helps with client and peer recognition, additional responsibility in the firm, and additional compensation. Your associate may not even be expecting or be ready to become an equity partner – they simply want to know what the next step is in their career advancement and whether equity partnership is even possible in your firm down the road. Last week I interviews ten associates in a firm and six out of ten advised me that they had no interest at all in equity partnership. So, don’t assume that your associate is even interest in equity partnership.
I suggest that you give these issues serious thought before jumping off the cliff and prematurely admitting another partner. Adding another equity partner is a serious step and should be give appropriate due diligence.
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John W. Olmstead, MBA, Ph.D, CMC
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