New Partners -- What Are They Worth?
by Barbara Lewis MBA and Dan Otto MBA

Small law firms face the problem of adding new equity partners and determining what money they should charge for the partner to buy into the firm. Small firms may charge an equity partner nothing to join and larger firms may charge a partner anywhere from $30,000 to $50,000.

That amount depends on what’s called the "book value" of the firm. Taking the assets of the firm, subtracting the liabilities and then dividing that number by the number of current equity partners determines the "book value per equity partner." That becomes the entrance fee for a new partner to join the firm.

However, in a small firm where a couple of attorneys may be operating under the umbrella of a common name, but purchase their own equipment, such as computers and fax machines, the shared assets of the firm may be very small as well as the shared liabilities. In that case, you need to consider whether any buy-in fee is appropriate.

Action Step:

Centurion Consulting Group recommends that waiving the buy-in fee may be worth it, especially if the new partner has a name as a rainmaker or has a high profile because he or she is frequently speaking and writing in an effort to generate new business.

The goodwill that is generated by allowing an equity partner to join a small firm without paying a buy-in fee can, in the appropriate circumstances, far surpass the value of the money.