Traditionally, Law Partners are the people running law firms. Usually, it involves a group of senior lawyers who invest their money into the firm in return for a share of the profits.
The kind of partnership at a law firm is a vital element to contemplate for any would-be lawyer. It has an influence on the career pathways available to you and also an indicator of the type of culture a firm has.
I recommend knowing more about partnerships and understanding how a firm is structured so that you can plan and be strategic about your goals to become a partner in a law firm.
Partnership structures in law firms vary, and there are several considerations whether you should or want to become a partner, where you want to go in a partnership, and what it has in store for your career.
Generally, the track as law partners can last between 7 and 10 years, starting with a summer associate position. This is followed by moving on from a first-year associate to a senior associate and eventually to a partner.
It is estimated that around half of associates employed by small-sized firms later on becoming partners.
Becoming a Law Partner
One way to stay on the partnership track is to make yourself likable and valuable in the long run.
You can achieve this by billing around 2,000 hours (or even more) in a year, creating well-composed work, and by sharpening your skills in your niche practice area.
A touch of political confidence and the ability to work well with others, from paralegals to partners, is also beneficial.
An essential element is no other than business development. Attorneys who work on extra hours, especially dedicating time on heavy-duty tasks, keep hold of current clients and discover new business are appraised as potential law partners.
You will know that you are chosen once you reach your third year as an associate. Sadly, if you receive a note that your work or billable hours are not sufficient, it might be best to look for a new firm before it is too late.
Remember that staying too long at a law firm where you are not regarded as a partner material will make your marketability drop. If this is the case, start networking while your marketability value is still high.
Time to get in touch with friends and business associates for referrals to potential and reputable recruiters.
What is equity or non-equity?
If you are lucky to make it to the partnership cut, you must fully understand what is being offered and closely scrutinize the law partnership contract.
You should identify the various layers of partnership structures at your firm, the profits’ division, and how and when you will receive bonuses. Several firms pay law partners an equal share and make allotments to partners quarterly or yearly.
For large-sized law firms, they usually use two law partner structures – equity and non-equity. It is a “true” partnership in an equity partnership where you are required to fund your buy-in.
Take note that equity partners own a fraction of the law firm’s holdings, including real estate and liabilities.
The law firms that simply compensate their associates with the partner name and reputation without offsetting their ownership offer the non-equity partnership.
With this type of partnership, you can engage in profit sharing and gain the partner label’s status, but you do not share the firm.
What happens when you become a partner?
During your first year as one of the law partners, do not expect a substantial profit. Once you become a partner, you might have to pay for your benefits and file a partnership tax return.
Throughout the first year in partnership, the actual take-home pay is usually lower than the last year’s pay as a senior associate.
As a partner, you must pay close attention to the backroom deals, which committees hold the most power, who backstabs whom, and who supports which factions.
Since you are now a business owner, your finances and your firm are influenced by these factors.
Remember that being chosen as one of the law partners requires effort and hard work. Most see the rewards, but you must strive hard to achieve them even if it takes time.
In a partnership, the pressure is on running your practice, taking part in firm management, bringing in new business, and delivering the best service to your clients.
A close look into the advantages and disadvantages of partnership
A partnership structure in a law firm comprises two or more legal professionals owning and managing a legal practice.
In law partnership contracts, it reflects the partner’s responsibilities, distribution of the law’s firm’s profits, losses, and capital contributions.
A partnership can consist of individuals or a partnership of discretionary trusts, depending on your jurisdiction.
Advantages of a Law Firm Partnership
• The law firm’s profits are accurately split among law partners to reflect their contribution or to ease the overall taxation requirements.
• A partnership arrangement allows utilizing specialist expertise and knowledge, which is not possible when under a sole practitioner structure.
• Increase more capital for the law firm based on the partner’s contributions.
• A partnership is less costly to set up than a company structure, but this depends on the nature of legal documents required.
• The employees can be incentivized with opportunities for promotion to become partners based on their overall performance.
• Any changes, if necessary, are simple to implement.
Disadvantages of a Law Firm Partnership
• Possibility for disputes between partners.
• A partnership structure typically requires a consensus for decision-making, which might be a factor in slowing down the process.
• Every partner is personally liable for the law firm’s debts and liable for other law firm partners’ actions.
Equity partners: What does it mean?
When it comes to equity partners, it merely means that a partner buys into the business to be able to receive a share of the law firm’s profits later on.
When it comes to equity law partner structures, it is less popular than other partnership structures but has its share of benefits.
An equity partner “buys into” the law firm.
As equity partners, you are going to “buy into” the law firm. This means that the partner’s income will come straight from the profit that the company earns. This will be provided as part of their salary or an incentivized bonus.
Although a partnership can be established with a partnership agreement, it is different in one way. The partner gives a decided amount to buy into the business and acquires the financial incentives.
The ‘buy-in’ amount adds capital to the firm.
As equity partners, remember that it is based on a premise of investment and return. If you are lucky to be chosen as an equity partner, the capital you invest in the “buy-in” is beneficial to the firm. This is based on forecasts that profits will continue to increase for the firm.
An equity partner has an entrusted interest in the success of the firm.
Since an equity partner buys into the firm, you not only have a financial hold but a personal interest in driving the law firm forward. Among the partnership structures, it motivates partners to strive higher for the success of the firm. Sadly, if the firm stagnates or declines, it places pressure on the law partners to work harder.
Although equity partners tend to receive equal dividends, I suggest considering the various interests and personal circumstances that every partner has. A new partner has long-term visions for the firm while a retiring one might be focused on short-term profit to retire with a decent capital.
Equal distribution of profits among partners along with debt accountability
Profits from the firm are usually distributed equally among the equity partners. Although the profits are distributed equally, the partners are also responsible for any debts incurred. I believe that this can be quite risky if your partnership is not in a good financial position.
There are instances when you might disagree with other partners when it comes to business decisions.
I recommend being careful when it comes to the clauses in the law partnership contracts which cover disputes. In case there is no phrase for managing arguments amongst partners, consider it a warning signal that the partnership is not prepared to handle issues if they arise.
Suppose you are considering entering an equity partnership in a law firm where you have been an associate for several years. In that case, I strongly advise making sure that you are in a financial position to afford the “buy-in” amount and are eager to work even harder since you will become “part” of the law firm.
What is a partnership agreement?
A partnership is where two or more individuals co-operate the business and share the income. Every partner act on behalf of the other law partners, and there is no real separation of the partnership from the operational aspect.
The partnership agreements or the law partnership contracts are legal documents that lay out the firm’s terms and protect all law partners’ interests.
Generally, Partnership Agreements include the following details.
• Name of the partnership
• How the partnership will be established?
• Distribution method of the profits and assets
• Roles and responsibilities of every partner
• Limitations and restraints
• The process of appointing a new partner and what happens if a partner decides to leave
• How to dissolve the partnership?
Questions to ask if a potential partnership is likely
If you are lucky enough to be offered a partnership, I suggest knowing more about what it means to be a partner at your law firm.
Generally, most of what defines the terms of partnership in your law firm are outlined in the written partnership agreement.
Since you will not really understand this arrangement until you have received the offer.
I have a few suggestions of questions that you should consider asking to get a clear picture of a partnership at your designated firm:
• Is the partnership structure a single-tier (equity) or the two-tier (non-equity)?
• Will you receive an equal share only, or is a fixed compensation given?
• What is the process used in determining the amount of every partner’s draw, and how often will partners be given the draws?
• How much capital contributions are required, and when will you be required to make them?
• Does the partnership have an influence on my benefits and the amount to pay for them?
• If the arrangement is a two-tiered one, what are the conditions to qualify as an equity partner when I become an income partner?
Is it worth it to become a Law Firm Partner?
When you are a partner in a law firm it bestows a certain reputation and social status on you.
It can also make it very difficult for you to leave the firm. However, you will be more likely to move on to other partnerships if you decide to resign.
It is very beneficial from a financial point of view to be a Law Firm Partner.
Salary.com states that “The average Managing Partner-Law Firm salary in the United States is $184,627 as of August 27, 2020, but the salary range typically falls between $160,432 and $210,965”.
Legal Cheek reported that the average UK law firm partner pay is over £200,000 per annum.
These are significant salaries and worth striving for if you are motivated by money.
Becoming one of your firm’s law partners is likely one of the big goals in your legal career. Always remember that you should not accept a partnership offer without learning the basics of what it means for your career as well as your wallet.