23 Key Provisions in a Partner Buyout

handshake-1388361357w8dh9-150x150Vesting, notice, clawback and other points to ponder.

By Marc Rosenberg
How to Bring in New Partners

In determining buyout, I have discussed several key points, such as:

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  • Will the buyout be limited to capital only or will it include a goodwill provision? (Ninety-five percent of all firms with retirement plans pay both.)
  • How will the goodwill be valued? The average goodwill valuation is roughly 80 percent of fees, although there are still many firms at 100 percent and many firms well below 80 percent.
  • How will an individual partner’s buyout amount be determined? Two partner retirement benefit systems that you should consider are AAV or average annual value, better described as “cumulative benefits,” and multiple of compensation, the most common method used by firms, especially those with six or more partners.