RMN'S Blog

What Is an Equity Partner?

Date: March 07, 2013

What Is an Equity Partner?Becoming a partner in a law firm is a long-term goal for most associates, spending several years working, building the experience and skill set it takes in hopes of getting promoted to partnership. Once they have acquired their status in a law firm, the opportunity to advance usually starts with non-equity, than the next step is equity partnership. Equity and non-equity partnership both have different benefits, salaries, and power within the firm. In this blog, we will examine the responsibilities and roles of an equity partner.

Equity partners take part in the ownership and business aspect of the firm, receiving a share of the profits the law firm brings in. They partake in projects that are expected to generate revenue, and then the revenue is shared among those who participated. Partners with more seniority and/or business tend to claim a higher percentage of yearly profits.  In addition to being involved in the share generated by ventures, they are also invested in the liability inherent in the firm. The degree of liability varies among partners based on the amount he or she invested into the firm. For example, a partner who contributes a small amount into the project is entitled to a smaller share in the profits compared to someone who invested more into the firm.

Depending on the firm some equity partners get to vote on important matters regarding the law firm, including the financial directions, determining which clients to represent, and electing other law firm partners. Unless the partnership generates profit and enough net income to be distributed among the other partners, some equity partnerships are structured so that the equity partners wait some time before receiving revenue. As with any investment, there are risks, it is important for equity partners to consider all potential outcomes of their investments, and base their contribution in the firm on the probability of having a positive result. The benefits can be extremely rewarding if you make a good investment.

Before advancing as an equity partner in your law firm, it can be beneficial to examine your financial circumstances. Saul Brenner and Marianne Reidy of The New York Law Journal emphasize that, “Your personal time will now be at a premium, and you may want to consider setting up a personal budget and organizing your bill paying and bookkeeping.” This can also be a good time to reassess your life insurance to ensure your family is covered appropriately. You may want to consider looking into education financing for college, such as Section 529 plans and trusts, if you have children. Like any promotion, there are risks and benefits of accepting the new position. With proper planning and knowledge of the position, becoming an equity partner of your law firm can be very rewarding.