Leading legal recruitment specialists EJ Legal weigh up the risks and rewards of different UK law firm partnership options.
After reading our previous blog post on whether to pursue partnership, let's assume you've definitely set your sights on this course. What are the different types available to you, what are the upsides and downsides associated with each and what should you look out for?
Your first step is to view your career like an investment – one of the most important you will ever make. So start by doing your due diligence. In brief, that means checking revenue and profitability figures, liabilities and any outstanding complaints. It additionally means checking the firm's plans and the responsibilities you will be expected to assume. Also why they want to take you on – sometimes motives can be less than transparent or even honourable, unfortunately (we'll be looking at due diligence in greater depth in a future post).
Remuneration and contribution
Assuming you're happy with what you've found out, you next need to identify exactly what's involved. What kind of partnership is it and when and how will you receive the rewards, and what will be your slice of the pie? Many firms pay partners a draw, plus quarterly or annual distributions. Check for what else you're being offered, such as healthcare, pension provisions and life insurance.
With a non-equity partnership, you'll get a salary and a share of the profits, but that's it. If you're being offered an equity partnership – a complete partnership – you'll need to fund your share. You'll then own a portion of the firm's assets….and its liabilities too (remember to check carefully for these as part of your due diligence).
What constitutes normal (and fair) market remuneration is a moot point. Generally, law firms still work on the rule of 1:3. You will typically earn one third of what you think you will generate or do generate, more if you do most of the work, less if others do it. If firms are in growth mode and have key strategic requirements you may be able to buck that trend, but this is generally still a model that law firms stick to.
Following the banking crisis of 2008, some firms began to adopt highly incentivised commission structures with lower base remuneration. In many ways this has created two separate markets: the traditional model and the hedged risk model.
In essence, the more risk you are willing to take and the lower guaranteed remuneration you are willing to accept, the stronger the overall percentage of remunerations to billings you can earn, with virtual law firms best exemplifying this model –read more on virtual firms in our earlier post here.
If a capital contribution is involved, you should be watchful. In recent years, this has been a cause of consternation for partners when there has been a request for further contributions, none more so than in the recent demise of the European arm of King & Wood Mallesons, described as 'more mismanaged than BHS' by one leading insolvency practitioner.
Though there is no specific rule on what or what isn't a normal level, a typical requirement will be to put in around a third of your expected earnings as contribution, often factoring in any anticipated bonuses. Anything significantly greater than this should be carefully discussed.
Ultimately, you should consider your capital contribution like any other investment and in terms of risk and reward. It's also likely that if you move up the rungs of partnership status and your earnings increase you may well need to put in an additional amount.
The difference that EJ Legal can make
Naturally we can help 'broker the deal', helping you to work out rewards, agree responsibilities and more. We can also help you decide – and negotiate – a different type of partnership. For example, if a salaried partnership is offered but a fixed share deal could be more beneficial to both parties.
At any one time, we have numerous available partnerships on our books in leading City firms, specialist and regional roles and extensive positions abroad, particularly in Europe and the Middle East.
For further details please contact us