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What Is Two-Tiered Partnership in a Law Firm?

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By George Khoury, Esq. on April 23, 2018 3:57 PM

For all but a handful of recent grads, finding a 'partnership track' associate position may seem like a pipe dream. However, with the increased prevalence of two-tiered partnership structures at many law firms, some job seekers may want to focus on firms with a two-tier partnership structure to increase their chances of ever even making it to partnership.

In short, a two-tiered partnership splits the law firm's partners into two groups: equity and non-equity partners. Being offered a position as either comes with a couple big caveats, as well as a couple big perks.

What's the Difference Between Equity and Non-Equity Partners?

The big difference between equity and non-equity partners is, not surprisingly, the whole equity thing. Equity partners are paid based on the firm's profits, while non-equity partners, generally, continue to receive salaries.

One potential drawback for equity partners may involve capital contributions. Some firms require an initial capital contribution from new equity partners to effectively ensure that the new partner has "skin in the game." Unfortunately, sometimes the required capital contributions can be prohibitively substantial. The biggest drawback however is having your income tied to the firm's profitability. If the firm isn't profitable, equity partner income could be worse than the senior associates' income.

A potential drawback for non-equity partners is the fact that non-equity partners are generally expected to be the "work horses," so to speak. While equity partners are expected to be the "show horses" that drum up new business, non-equity partners are often tasked with most of the case and associate management responsibilities. Generally, non-equity partners are expected to work harder for their consistent (and high) pay, while equity partners are expected to generate more business to increase all the equity partners' pay.

The Pros of Non-Equity Partnership Track

For many recent grads, the idea of making partner may not even be appealing. However, for those new lawyers, the non-equity track may be ideal. Since non-equity partners don't have capital tied up in the firm, they may be able to exit much more smoothly and with much less fanfare. Additionally, some firms may even offer non-equity partners the opportunity to become equity partners, if the desire materializes, or the non-equity partner proves to be talented in making it rain.

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