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Law Firm Partnership Structures

updated
September 8, 2022
14 min
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HR

You find hierarchies everywhere in the law. For example, trial court judges have ultimate authority in their courtrooms. But they also answer to appeals court judges.

You will also find hierarchy in law firms. The legal staff takes direction from lawyers. And among lawyers, your firm’s structure might consist of several titles and tiers, including associates, non-equity partners, equity partners, and “of counsel” lawyers. 

Each category of lawyers comes with a separate set of management responsibilities, compensation structures, and ownership rights.

Law firm partnership structures can set one firm apart from the others. You could have identical offers from different firms, but you might prefer one to the others simply because its partnership track offers you greater opportunities, compensation, and freedom.

Here are some of the elements that go into creating law firm partnership structures and how these elements could affect lawyers as they move through the ranks.

You can also read our article about choosing the right strategy for law firm growth to learn more about law firm marketing strategies.

Types of Law Firm Partnership Structures

Law firm partnership structures

When partners form a new firm, they struggle with how to structure a law firm partnership. New firms often create partnership tracks to solve problems they saw at their former firms.

To learn about the issues you may face as you start a new law firm, read our article, How to Start a Law Firm: An Ultimate Guide.

Single-Tier Partnership Law Firms

Law firms have traditionally used a single-tier partnership model. Lawyers were either associates or partners. Lawyers could become partners in law firms in one of two ways.

First, a lawyer could start as an associate. Many would start at the firm straight out of law school. Some might have even clerked for the firm before graduating. After several years of meeting their required billable hours and working long hours, the associate would be invited to become a partner.

Second, a lawyer might make a lateral move from another firm. If the lawyer had a large book of business or a highly coveted client, the firm’s partners might offer to make the lawyer a partner after the switch.

Single-tier partnership models have the benefit of simplicity. A small law firm partnership structure frequently follows this model. Associates are employees. Partners are owners who get paid a share of the profits. 

If a partner dies, the remaining partners pay the deceased partner's estate to buy back the partner’s shares according to a partnership agreement law firm valuation.

But this structure lacks advancement incentives for associates. Associates in a single-tier partnership model might need to work for the firm for decades before earning the full trust of the partners.

The reason for this extended time frame is law firm structure partnership liability. If a partner commits malpractice or harasses an employee, the remaining partners could lose their clients, livelihoods, and reputations. As a result, firm partners do not offer a partnership until they know and trust you completely.

Full Equity Partners

A single-tier partnership model has only one type of partner. Full equity partners have all of the rights and responsibilities of a business owner. Full equity partners receive full voting rights in all matters pertaining to firm management. They're also entitled to a share of the firm’s profits.

Historically, law firms were organized as partnerships, and full equity partners were partners. Now, many firms are organized as limited liability companies (LLCs) or professional corporations (PCs). Technically speaking, full equity owners would be called full equity members of an LLC or full equity shareholders of a PC.

In some cases, ownership comes at a cost. Some firms require new partners to buy in. This might require a payment from the new partner to the firm. More commonly, the payment gets deducted from the new partner's profit distribution over several years. The buy-in guarantees the firm always has working capital.

Two-Tier Partnership Law Firms

Newer firms sometimes use a more complicated partnership law firm organizational structure with multiple law firm partnership levels. This structure has a few goals.

First, with quicker prospects for advancement, associates have an incentive to stay with the firm and work hard to meet their billing quotas. Rather than waiting a decade for a partnership invitation in a single-tier partnership model, an associate might get promoted to non-equity partner after a few years.

Second, multi-tier partnerships give firms more flexibility to hire and retain experienced practitioners. A young lawyer with experience, skills, and a large book of business will make partner someday. 

But until then, the firm must find ways to retain the lawyer until they earn the trust needed of a full equity partner. By increasing the lawyer's compensation and responsibilities, the firm can reward the lawyer without taking the risk of offering a full equity partnership.

Fixed Share Equity (FSE) Partners

The term "fixed share equity partners" is primarily used in the U.K. In the U.S., the term "non-equity partners" refers to all partners who do not own a share of the law firm but have more seniority than associates.

In the U.K., FSE partners are not partners and do not have a fixed share of the firm's equity. Instead, they are senior associates who can vote on a limited set of firm management issues, get paid a salary, and receive a year-end bonus based on the firm’s profitability. 

In a typical FSE partnership law firm structure, the full equity partners set aside a “fixed share” of the firm’s profits to pay FSE bonuses, hence the name.

The benefit of FSE partnerships is that the FSE partners are not liable for the firm's losses. If the firm has a bad year, the FSE partners do not need to contribute capital or forgo their paychecks. They always receive their salaries, but they might not receive bonuses in a down year.

U.S. firms use a similar structure. But instead of calling these attorneys FSE partners, they might call them junior partners. The benefit of this level of partnership is that the lawyer receives a guaranteed salary and profit sharing. The drawback is that the lawyer has little or no input into how the firm runs.

Salaried Partners

A salaried partner, also called an income partner, is also a non-equity partner. These “partners” do not have an ownership stake in the firm.

A salaried partner is roughly equivalent to a senior associate. As the name suggests, an income partner receives a salary and a discretionary bonus instead of profit sharing. This distinguishes them from FSE partners who get a share of the firm’s year-end profit.

The benefit of this partnership model is that the firm can promote associates without the risk of taking on untested law firm partners. 

The downside is that most lawyers understand that promotion to a salaried partnership does not represent much of a step forward on a legal career path. It may feel like the firm is keeping experienced associates from reaching the partner level.

How Does a Law Firm Work?

Private law firms have an internal structure just like any other business. Each person in the firm fills a role in providing legal services to clients. The roles include lawyers who are admitted to practice law and the legal staff who support the law practitioners.

Lawyers practice law, including:

  • Advising and counseling clients
  • Representing clients before adjudicative bodies
  • Advocating for clients against opposing parties
  • Negotiating on behalf of clients

Attorneys also have roles within the firm. Each one's role depends on their relationship with the law firm.

Partner/Executive

What is a partner? Partners own a share of the law firm. They steer the direction of the law firm through an established management structure.

Some firms have a management committee law firm structure. This committee makes decisions by taking a vote among the partners.

Other firms have a managing partner law firm structure. This partner acts as the executive, making day-to-day decisions. The law firm will still take partnership votes on major issues like merging with another firm or firing a partner. The firm's articles of organization or partnership agreement identify issues that require a vote.

Associate

Associates are employees of the law firm. They have no management responsibilities, no vote on firm matters, and no ownership stake in the firm. They do not have the right to profit sharing and have nothing at risk if the firm has financial struggles.

Many law firms are divided into sections. Each section covers a particular practice area. Associates are usually assigned to a particular section based on the firm’s needs and the associate’s interests. For example, associates in the intellectual property section will spend most of their time on IP cases.

Each section is led by one or more partners who oversee the cases in their sections. The associates usually report to partners who set the case strategy.

Contract Lawyer

Contract lawyers are independent contractors for the firm. They usually join a firm temporarily to fill a particular need. A firm with a large antitrust case might hire a well-known antitrust law professor on a contract basis for the case.

When the contract ends, the contract lawyer can move on to another job or return to their normal work. Contract lawyers usually get paid a salary and rarely receive an ownership stake in the firm.

“Of Counsel” Lawyer

“Of counsel” covers many roles. Sometimes senior lawyers transitioning out of firms will take the title “of counsel.” This allows the lawyer’s name to remain associated with the firm, but the lawyer no longer engages in full-time practice.

Firms also use “of counsel” to refer to a lawyer who is affiliated with the firm but has other interests that prevent them from practicing. For example, lawyers elected or appointed to government offices might take the title “of counsel” during their term. When their term ends, they return to the firm as a partner.

Legal Staff

A firm’s legal staff provides a range of support services to attorneys, including:

  • Answering phones and emails
  • Preparing and formatting documents for filing
  • Managing the lawyers' work schedules
  • Docketing and reminding the lawyers of deadlines

Staff members are either employees or independent contractors. Firms hire staff to make attorneys more efficient at providing legal services. The lawyers and their staff members work together to represent clients in the most effective way possible.

Law Clerks

Law clerks are usually law students who work for a firm on a temporary basis during summer breaks or after classes. Law firms often hire law clerks as an audition for a position after law school. Similarly, law clerks work for firms to determine whether the firm’s culture matches what they want in their future law practice.

Law clerks are employees of the law firm. They may work under the supervision of a partner who oversees the firm’s law clerk program. They perform legal research and draft documents just as they would as a lawyer. If a student’s clerkship goes smoothly, the firm may extend an offer of employment.

Paralegals

Some states limit the term “paralegal” to someone who has earned a paralegal certificate. Other states allow anyone working under the direction of a lawyer to use the term.

Paralegals assist lawyers in providing legal services. Their role is different from that of legal secretaries, who perform primarily administrative tasks. Paralegals draft documents, prepare exhibits, and perform legal research.

Paralegals often have expertise that attorneys lack. A litigation paralegal might, for example, know all of the rules that apply to appeal briefs, including filing deadlines and required supporting documents.

Legal Secretaries

Depending on the firm, a legal secretary might also be called a legal assistant or legal administrator. Legal secretaries provide administrative support to attorneys.

In contrast to paralegals, legal secretaries generally do not provide legal services. Instead, they perform tasks like scheduling appointments, maintaining the lawyer's calendar, preparing client correspondence, and filing documents. 

In small firms, legal secretaries may also order office supplies, make sure vendors and suppliers get paid, and send bills to clients.

Other Staff Members

Law firms have other staff members to help run day-to-day operations. Some examples include:

  • Runners to file documents and deliver papers
  • Investigators to perform background research
  • Network administrators to keep the firm’s computer system running
  • Billing and accounting administrators to manage accounts payable and receivable

These employees usually work under the direction of an office manager and a managing partner.

Questions to Ask Before Starting a Law Partnership

Being offered a law firm partnership is a big step forward in a lawyer’s career. But many lawyers do not consider how this might affect their law practice and family life.

Some questions to ask before joining a partnership include:

Compensation

Most non-equity partners receive a salary and a bonus. The big question for a non-equity partnership is whether your bonus is discretionary or based on the firm’s profits.

Equity partners typically receive a stream of income and a distribution at the end of the year. The stream of income usually constitutes a draw against your expected distribution. 

Suppose that you expect to receive a profit distribution of $200,000 per year. If you take monthly draws of $10,000 to cover your living expenses, $120,000 gets subtracted from your profit distribution leaving an $80,000 year-end bonus.

Two big questions for equity partners are:

  • Do you have to repay draws if the firm isn't profitable?
  • Will the firm deduct a buy-in from your draws?

The answers could make a big difference in the resources you and your family will have.

Advancement

As discussed previously, some firms have multiple partnership levels. You should understand the firm’s structure and how you’re likely to advance through the ranks.

Control

A partner usually has control over their legal practice. Find out whether the other lawyers have veto power over your cases and clients. And determine your freedom to spend the firm’s resources on law firm business development and marketing your practice.

To learn more about website design and online marketing for law firms, read about our website services for lawyers.

Management and Administrative Responsibilities

Becoming a partner takes time from your work and home schedule. Partners often have management and administrative responsibilities. Find out the time commitments that come with the partnership.

How Are Lawyers Partners Chosen?

To paraphrase, some partners are born while others have partnership thrust upon them. You can start a law firm with other attorneys and become a partner through your status as a co-founder. Or you can join an established law firm and work your way to a partnership.

If you join an established firm, you need to understand the firm’s partner selection process. In many firms, this process is shrouded in mystery. The firm might do this intentionally so they have wiggle room in who they choose for a partnership. But other firms have a transparent process for selecting partners.

Most law firm partnerships depend on:

  • Meeting billing quotas
  • Building a book of business
  • Doing good work

Many firms set milestones in each of these areas before the partners will consider extending a partnership invitation.

How to Join a Law Partnership

To join an existing law partnership, you will need an invitation. Whether the firm is structured as a partnership, LLC, or PC, the existing partners need to give or sell you an ownership share in the firm.

There’s no secret formula that will make you stand out as potential partner material. But many law firm partners follow a similar path.

Do Good Work and Occupy a Specific Niche

When you do good work, word gets around. Law firms want partners with good reputations for a few reasons:

  • You will build a solid book of business
  • You pose a low risk of malpractice
  • You can mentor young associates

Your chances of receiving a partnership offer are even better if you have a rare practice area. Remember, partners play a critical role in the firm’s business development and must bring new cases to the firm. If you occupy a specific niche, you’ll have less competition for clients and can open up a new practice field.

Establish and Maintain Relationships

Even though word will get around about the quality of your work, it always helps to have connections with the firms you want to join. The reality is that a firm’s partners are more likely to offer a partnership to someone they know than someone unknown to them.

As mentioned previously, partners must trust each other. A firm and its partners face enormous risks when a partner misbehaves. Your odds of receiving a partnership offer are higher if a law firm’s partners like, trust, and respect you.

Get Advice from the Right People

Mentorship can open doors for you. A mentor who has gone through a firm’s partnership track has insight into what works and what doesn’t work when seeking advancement. An experienced lawyer will also have ideas about what you should look for and what you should avoid in a partnership structure.

If you seek mentorship from a lawyer at a firm you want to join, you not only receive good advice, but you also gain an advocate. Your mentor can put in a good word for you with the law firm’s partners and push for your partnership offer.

Becoming a Partner

Most private practitioners aspire to become law firm partners. Partners are better compensated and have more freedom over their practices. They also get intangible benefits like respect within the legal profession. If you share this goal, make sure you understand your law firm’s partnership track.

But making partner is not for everyone. It requires long hours that can take you away from family and hobbies outside the office. Once you make partner, you will have administrative and managerial responsibilities that could further impinge on your schedule. 

For some lawyers, an alternative career path, like a solo practice, better fits their personal and professional goals.

To learn how to start or grow your law practice from a professional law firm digital marketing company, check out our website.

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