Non-Equity Partners: Why Have Them?

10 sample provisions.

By Marc Rosenberg

In a CPA firm, the equity partners are the “drivers.” They bring in business, retain clients by providing great service, lead others and develop staff into leaders. They drive the firm’s revenues and profits. Their talent, leadership skills, personality and work ethic enable the organization to achieve excellence.

MORE: Making Partner: Today’s 15 Essential Skills and Traits | Why Non-Compete and Non-Solicitation Covenants Matter | Handling Pay During the Disability of a Partner | Why Voting Isn’t Such a Big Deal | What’s in a (Firm) Name? | Protect Your Business with a Solid Partner Agreement
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All organizations need drivers to excel beyond the competition, to exceed being average. Sports teams, governments, charities, orchestras and yes, CPA firms all need drivers. An organization that lacks drivers will slide to average or worse, mediocrity.
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Making Partner: Today’s 15 Essential Skills and Traits

Do you have what it takes? Bonus: Six boxes to check off, and seven tough questions.

By Marc Rosenberg

What is the right stuff to earn a promotion to partner? This is one of several questions that if asked of ten partners from different firms, you may get ten different answers.

MORE: Why You Might Want an Executive Committee | How to Specify Managing Partner Duties | When Votes Must Be Taken, What Are the Options? | Ownership Percentage and Capital Accounts | 5 Key Reasons to Have a Partner Agreement

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I have worked the following script dozens of times at partner retreats: I ask the group what it means to be a partner and write their responses on a flipchart. When we’re done, one of the partners yells out “Oh no. None of us qualifies!” And because the truth is often said in jest, this retort is no joke.

Wouldn’t it be wonderful if every partner in every firm was a star partner? For almost all firms, this is an impossible dream. So how high should the bar be raised – realistically – to become a partner, or conversely, how low should it go?

Following are common examples of skills and traits that CPA firms require of their partner-potentials before they are promoted to partner. Plus: Six boxes partner-candidates must be able to check off, and seven of the toughest questions to assess readiness. This list is not all-inclusive and will vary from firm to firm.

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Why Non-Compete and Non-Solicitation Covenants Matter

Businessman sitting in office and reading documentsBONUS: A sample agreement.

By Marc Rosenberg

"Non-compete" and "non-solicitation" are two terms often used interchangeably. Though they are similar, there are important differences.

MORE: Why You Might Want an Executive Committee | How to Specify Managing Partner Duties | When Votes Must Be Taken, What Are the Options? | Ownership Percentage and Capital Accounts | 5 Key Reasons to Have a Partner Agreement
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For the sake of brevity, we use the term “non-competes” to refer to both covenants.
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Why You Might Want an Executive Committee

Business people having meeting10 specific duties.

By Marc Rosenberg

As firms evolve in size, many things need to change.

MORE: How to Specify Managing Partner Duties | Handling Pay During the Disability of a Partner | Why Voting Isn’t Such a Big Deal | What’s in a (Firm) Name? | Protect Your Business with a Solid Partner Agreement
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One of the biggest changes over time is how the firm is managed.
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How to Specify Managing Partner Duties

Older executive businesswoman drinking coffee and reviewing papers bound in notebook.11 suggestions for inclusion in the partner agreement.

By Marc Rosenberg

There are certain provisions in a partner agreement that should be kept simple and short because over time, firms have a habit of making changes quite often. You don’t want to have to change your partner agreement every time you change the managing partner’s role.

MORE: Handling Pay During the Disability of a Partner | Buyout When a Partner Dies | Why and How New Partners Buy In | A Crash Course in Partner Retirement/Buyout Plans | Protect Your Business with a Solid Partner Agreement
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Good examples are the firm’s system for allocating partner income and, to the point of this post, duties of the managing partner.
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Handling Pay During the Disability of a Partner

Statue of scales of justice5 best practices.

By Marc Rosenberg

It’s often been said that disability is much harder to deal with than death, from the standpoint of firm governance. Death is clear and finite. But disability is much more complicated and unclear.

MORE ON PARTNERSHIP: When Votes Must Be Taken, What Are the Options? | Why Voting Isn’t Such a Big Deal | What’s in a (Firm) Name? | Protect Your Business with a Solid Partner Agreement
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  1. What is the extent of the disability?
  2. What is the likelihood that the partner can fully recover?
  3. How long will the recovery take?
  4. When the partner returns to work, is he or she capable of performing normal partner duties and working normal partner hours?

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Buyout When a Partner Dies

Older businessman leaning back thinkingIs the firm's life insurance up to date? Probably not.

By Marc Rosenberg

It's a tough question, but one that must be asked: In the event of a partner's death, does the firm wish to accelerate the buyout?

MORE: When Votes Must Be Taken, What Are the Options? | Why Voting Isn’t Such a Big Deal | What’s in a (Firm) Name? | Protect Your Business with a Solid Partner Agreement
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There are two ways to do so: accelerate vesting or accelerate the payment schedule.
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When Votes Must Be Taken, What Are the Options?

Overhead shot of eight businesspeople meeting around a table5 ways to vote, plus how to set a supermajority.

By Marc Rosenberg

We've established that voting is overrated and that most firms rarely vote.

MORE: Why Voting Isn’t Such a Big Deal | Why and How New Partners Buy In | A Crash Course in Partner Retirement/Buyout Plans | Protect Your Business with a Solid Partner Agreement
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Sometimes, though, it's necessary. But how?
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Why Voting Isn’t Such a Big Deal

Overhead view of five businesspeople discussing something at a table with an open laptop nearbyWhat about non-equity partners?

By Marc Rosenberg

Voting is a highly overrated privilege of being a partner.

MORE: Why and How New Partners Buy In | Ownership Percentage and Capital Accounts | 5 Key Reasons to Have a Partner Agreement
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When you don’t have a vote, it seems desirous and enviable. It appears to be a very special privilege enjoyed only by the firm’s elite. Having a vote is synonymous with ownership, power and prestige.
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Why and How New Partners Buy In

Businessman signing document as another looks on7 key provisions.

By Marc Rosenberg

Let’s start with a very basic, standard concept in the business world: A partner is an owner.

MORE: Why and How New Partners Buy In | Ownership Percentage and Capital Accounts | 5 Key Reasons to Have a Partner Agreement
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In any business, not just CPA firms, ownership is not free. Because partners are owners, they have to purchase a part of a company, for money, to acquire an ownership share.
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Ownership Percentage and Capital Accounts

Cut pie chart on plate flanked by fork and knife3 ownership percentage problems and 4 provisions for the capital section.

By Marc Rosenberg

The term “ownership percentage” has wrought havoc in CPA firm operations for decades. How so?

MORE: What’s in a (Firm) Name? | A Crash Course in Partner Retirement/Buyout Plans | 5 Key Reasons to Have a Partner Agreement | Protect Your Business with a Solid Partner Agreement
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First, let’s take a step back. There are five primary ways that ownership percentage may impact a firm and its partners:

  1. Determining new partner buy-in
  2. Allocating partner income
  3. Determining partner retirement/buyout benefits
  4. Allocating the proceeds of the firm's sale to the partners
  5. Voting

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