Let’s look at the common pitfalls we find with ownership distribution, using scenarios to drive home various points. Let’s say we have a five-partner firm.
The ownership and age is as follows:
Partner Equity Age
Senior Partner 1 (SP1) 35% 65
Senior Partner 2 (SP2) 35% 63
Junior Partner 1 (JP1) 15% 53
Junior Partner 2 (JP2) 10% 48
Junior Partner 3 (JP3) 5% 42
First of all, many firms would die for this kind of age split as – unfortunately – many firms have partners much closer in age than this 23-year range example. But continuing on, let’s say Senior Partner 1 (SP1) wants to retire at the end of this year. If this would occur as it does in many firms, we would be scrambling for additional partners. But for the sake of this discussion, let’s say we just addedJunior Partner 3 (JP3) last year and we will add JP1 immediately after SP1’s retirement with an ownership interest of 5 percent.
So, if this were to occur without unusual intervention, the new ownership percentages would look something like this a year later: