Partnership structure

The number of equity partners in a business is fundamental and is likely to change over time. It is always a difficult decision to determine the optimum number for any business. A balance needs to be struck between maximising profit per partner and keeping capital requirements to a manageable level, against the backdrop of the critical mass of the business, its ability to maintain or improve market share and the requirements of its banks and other debt funders.

The partner equity ratio alone has the potential to create issues. This is an area ripe for review from time to time, for example as equity/profit share ratios fall out of step with the level of fees and profits generated per partner.

A key balance is always the number of non-equity fee winners/earners to the number of equity partners. This dynamic is different in different practices and markets and always needs a carefully thought-out remuneration and reward strategy.

Paths to partnership

Career progression is vitally important for those fee earners who are the managers and partners of tomorrow. Defining and re-defining the path to equity is something that needs careful thought. A simplistic route may be via Associate; Salaried Partner; Fixed Share Partner and lock-step plan to full equity.

If there is one area of partnership that is left unattended or even avoided, it’s the problems surrounding succession. Partner retirements seem to catch many practices by surprise and can create a serious hiatus for a business where there has been little planning given to how partners leave and are replaced, and what the new structure is going to be.

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