From Associate Attorney to Shareholder?

[ACuriae]

It's ridiculous that I don't know this, but Google isn't being very helpful and I don't remember anything having to do with it in Biz Orgs.

When an associate attorney becomes a shareholder (equity), how does the process typically work? Is the associate 'awarded' shares? Does the associate have to pay for the shares up front? Is the associate given or sold options to be exercised from time-to-time?

Anyone have an overview of the process? I'd ask someone I know but I'm embarrassed to admit that I don't know one of the fundamentals of operating a law practice.

 

[busterbrown16]

You normally have to "purchase" your share in the partnership or company (however the firm is set up). Every firm handles it differently, but you typically have the option to "buy in" over several years and they can deduct it from your paycheck.

That is about all I know at this point and that is mainly from happy hour conversations with drunk partners. Due to the recent economic downturn, I am so far away from making equity partner, it is not even funny.

 

[HoustonHorn93]

Last time I had anything to do with that (in-house now) most firms had a buy-in and it could be done over time as a deduction from your partner draw. No idea what firms are doing now over the last few years.

 

[dfw75201]

It is a buy in for actual shares (not options). The dollar amount can be quite large for established firms. Although some firms may let you buy the shares over time, this is pretty complicated because the value of the shares may change. What is more typical is that if you can't afford the cash buy-in, the firm loans you the money and you sign a promissory note and an agreement to pay back the amount of the loan in installments, usually taken from your paycheck (your draw from the firm profits). It is not unusual for a young partner to take home less money as a partner than he/she did as an associate because of the payments on the note. It is important to have an objective method for valuing the shares and a good shareholders agreement governing lots of things, but most importantly, any restrictions on transfer.

 

[ACuriae]

Awesome. Thanks for the info, guys.

 

[banksypete]

Get an accountant to look at their books to make sure that it is a good "investment" on your part. The buy in price does not often time reflect the worth of the same. Remember when you become partner if there is not enough money coming in you are the last to get paid. Phantom income is a huge problem. Also determine if you will be on the line personally for any debt that the firm has to the extent of your partnership share. Being a lawyer in Texas is not exactly a growth industry these days.