Law Firm Partnership – How to Admit Associates to Equity Partnership

Question:

I am the owner of a six-lawyer law firm in San Diego, California. Our firm is a business litigation boutique firm. I founded and formed the firm nineteen years ago. The other attorneys are all associates of which one has been with me for over ten years, one over five years, and the other three less than two years. I am 56 and still plan on working another ten to fifteen years. However, I don’t want to lose my senior associates and I want them to be around in ten to fifteen years to take over the firm, I also believe that they should be partners. The firm is presently a sole proprietorship. I would like to extend an offer to the senior associate now and possibly to the other senior associate in a a couple of years. How do I get started? What are some of the issues that I should be thinking about?

Response:

If you have never had a partner in this firm or another firm in the past this will be a new experience for you. Law partnerships are like marriages and choosing the right partner is essential. Not only should the lawyer be an exceptional lawyer as far as legal skills, client satisfaction, fee production, and client origination, he or she should have similar values and goals for the firm that you do. Will you mesh well? At least the associate is somewhat of a known quantity since you know the associate and have worked with the associate for several years. However, the experience will be different. Being a partner with someone is different than a boss-employee relationship.

Here are a few ideas you might consider:

Outline you goals and expectations for the relationship.
Meet with your associate and identify his/her goals and expectations for the relationship.
Determine how much control over the practice and decision-making are you willing to give up? Share?
Determine how much and for how long you are willing to make less?
Determine if the associate will be expected to bring in business? When/Timeline?
Think about the firm you want to build – firm-first or lone ranger (team based or individual practices)?
Decide on firm name – will it change? Should it? Impact on image, clients, etc.
Decision as to capital contribution or buy-in? Yes or No? How much? Timeline for payment?
Ownership percentages
Voting
Compensation
Withdrawal arrangements

I suggest you think about your succession and eventual exit from the firm and what, if anything, you are looking to receive (goodwill value) in monetary terms when you leave the practice. Rather than having a large buyout upon your retirement/exit from the firm tie this to the value per share or unit of ownership interest and establish this is the purchase price as ownership shares are acquired.

Since you are a proprietorship you will need to change the structure of the firm to a multi-owner structure such as PC, APLC, or LLP. (LLC’s are not permitted in California for law firms).

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John W. Olmstead, MBA, Ph.D, CMC

Posted at 07:56 AM in Partnership
Tags: Firm, Law, Partnership

Aug 27, 2020

Law Firm Partnership – How to Admit Associates to Equity Partnership

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