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Partnership – to be or not to be?


It’s the ultimate aim of many lawyers but is it right for everyone? An examination of the financial and non financial considerations plus choosing the right firm and different types of partnership.

Not many lawyers setting out in practice would picture themselves in the future as a 40 year old assistant solicitor. But it is important to view partnership as a significant financial decision and one which is not without risk.

Traditionally there are main two types of partnership, salaried and equity. In larger firms equity partners will have two tiers, junior and senior. A salaried partner remains an employee of the firm, and whilst a salaried partner will have additional responsibilities arising from the title of partner, this article will focus mainly on equity partnership and the considerations which flow from that.

Considerations

The firm culture

Whether you have worked at the firm offering you partnership for 10 years or are considering an offer to move to a new firm as a partner, consider whether these are people you really want to be in partnership with? Do you agree with the firm’s ethos? Are you happy with how it is managed and the work-life balance of its partners? Does the strategic direction of the firm fit with your personal goals and aspirations? It is important to remember that you are entering into a financial commitment and business arrangement with your prospective fellow partners. Do not simply be blinded by the title of partner.

Capital

Firms have varying arrangements regarding capital. You need to be absolutely clear what will be expected of you in terms of paying capital into the firm. Are you expected to raise your own capital or does the firm have an arrangement with a bank? In a mid-large size firm you may be expected to pay in a fairly small amount from your own resources at junior partner level in the region of £5,000 -£20,000. At other firms a loan may be put in place with a bank. At smaller firms you may contribute capital by taking reduced drawings from the partnership.

Due diligence

You are making a major investment of both your capital and your time. You wouldn’t buy shares in a company without making enquiries or at least seeking advice regarding its financial status. Ask questions and for copies of accounts. Consider any major liabilities of the partnership and the provision which has been made for them. Consider arrangements if a partner leaves the firm and for retirement. Are there any restrictive covenants? If it doesn’t work out, will you be able to take any of your clients with you if you leave the firm?

Tax issues

Equity partners are self-employed and as such will need to file an annual a tax return. In addition self-employed status means a loss of the employment protection enjoyed by employees.

Other options

The life of an assistant or associate solicitor can be appealing. Employee status provides protection. You can concentrate on the client work you may enjoy the most rather than being tied up working longer hours attending partnership meetings and dealing with management. However partnership generally offers greater financial rewards and for an ambitious lawyer it may be the only acceptable route. Just make sure you do your homework before jumping in the deep end!

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