You’ve successfully owned your law firm for a decade and have employed two lawyers for most of that time. Both are all pretty decent but are not superstars. One day, they come to you and ask about the possibility of becoming partial equity owners. Your initial thinking is “I knew this day would probably come. Now, what do I do?” Well, here’s what you do.
First, the good news. Both have liked working for you and want to commit to your firm. The bad news: it has felt good to be king and do things your way. Do you want to jeopardize that? In most situations, probably not. Here’s why.
When to Add a Partner
Let’s initially talk about when you should make another lawyer an equity partner. You should acquiesce to superstar lawyers, especially those with a track record of bringing in clients and who are at risk of leaving your firm. Superstar lawyers with a book don’t grow on trees. Do you really want that lawyer competing against you? Of course you don’t; it’s better to keep them on your team.
When to Think Twice About Adding a Partner
The reality is that most lawyers who ask to become equity partners are not superstars and don’t have a respectable book of business. This is what I mean when I say that in “most situations” you say “no” when asked about an equity partnership. Here are some things to think about if you’re considering adding a partner:
- You have to open your books. Do you really want your new partner to know how much you made in the past?
- You have to revise whatever corporate governance documents you already have.
- Depending upon your governance structure, compensation and profit distribution may become more complicated.
- It’s also more complicated if your new partner decides to leave or, for whatever reason, your law firm dissolves.
With that said, I’m all for giving out the title “partner” when no equity is attached. Wall Street firms do it all the time. It costs nothing, and having such a title may even help business development efforts for a non-equity partner. So why not?
What to do Instead
I’ve always maintained to keep lawyers happy, owners of law firms should do two things: pay them fairly and competitively and give them a seat at the table. One can do both without providing equity. Concerning pay, use whatever metric you want to incentivize the behavior you want, and pay accordingly. That should satisfy most. As for giving a seat at the table, that’s just good overall management. Owners should always make employees feel listened to and that their opinion counts.
I’ve always been a strong proponent of the KISS (Keep It Simple, Stupid) philosophy of law firm management. Adding equity partners goes against that principle. The old adage “too many cooks spoil the soup” applies here as well as in the kitchen.
Feel free to reach out to me to discuss this further. You can reach me at 612-524-5837 or you can contact me online.
