Partnerships – heading for history….?

Are partnerships right for today’s world? And, what does the future hold for them?

On 2 May 2011, Quanticks became a trading division of Qlaw Legal Services Ltd.  The move, relatively unusual in the legal world, is something which founding solicitor Neil Quantick believes will become the norm. Here, Neil shares his thoughts on the move and some of the unhealthy culture that traditional partnerships breed.

“There’s lots about the legal profession that baffles me. The two top spots are as follows. Both (in my view) are at best ill-considered, and at worst idiotic. Both are issues of gloss and vanity.
Number one goes to the obsession (largely within the profession) that size (of firm) and quality of service apparently go hand in hand. The bigger the firm, the better it is. Nonsense. That’s not to say that certain work types don’t demand a certain critical mass – they do. But, that’s a very different point. And make no mistakes about it, the discerning public are plenty sophisticated enough to see beyond it.

My number two, and the subject of today’s thoughts is the equally baffling obsession that exists around ‘status’. More particularly, it’s about partnerships. Are they right for today’s world? And, what does the future hold for them.

I’ve made it

We interviewed recently for a junior solicitor position. More than once, the question of the partnership was raised (this was prior to our incorporation). Why do you want to be a partner we asked? “Status” comes back, “recognition of my achievements”. Why does an often meaningless title mean you’ve made it?!

I’ll come on to what being a ‘partner’ is really all about later. For now, let me just say that being a key player (whatever you’re called) in any business is much more about what you bring to that business than any title that business bestows on you.

What is it?

Stating the down right obvious I know, but we better had. Being a partner is usually split into two types – equity and salaried. Both are to recognise seniority. As an equity partner you own a share of the business, and as a salaried partner you don’t. Usually, partners of both persuasions will work within the business.

Fast forward to the real world, and businesses generally have shareholders (owners), and employees (both junior and senior). Often, the shareholders won’t be employees, and vice versa. Employees at all levels are there because they want to be (hopefully!), and all are free to move on if they have reason to, without the mess of unravelling issues of ownership. In a partnership, the distinction between shareholder and employee does, in my view, become blurred.

You want to be there

Forgetting all else, we spend a heck of a long time at work. The thought of everyone (junior and senior) working at a certain company because they want to be there (not because they are locked in as owners) excites me. The idea that we’re all there because we ‘get’ the business, and we want to be a part of it is extremely healthy in my view. All too often, it seems to me that those that manage a law firm (the partners) are there for good – like it or lump it. They’re locked in. Yuk! Give ourselves the freedom to move employment as and when, and to do so freely. Celebrate that, and accept that it challenges businesses to find people they really get, and who really get them.

Remuneration

Fact – most partnerships judge partner’s remuneration, in part at least, on performance. Hang on, do they own a share or not? Well yes they do, but it seems that’s a moving shareholding. That’s because the line between owner and employee is so blurred.

Pay employees for what they bring to the business. And pay owners a dividend dependant on how much of the business they own, whether they work there or not. Other businesses have been doing it forever, but, like so many other things, it seems us lawyers take an age to cotton on.

The real key issue

Whatever we call the key people in our business, the important thing is that those senior personnel deliver. It’s important that they deliver, and they should be remunerated as a direct result of what they bring to that business.

I mentioned earlier some recent interviews we’d done for a junior solicitor. More than one asked whether there was scope to become a partner. When asked what they’d bring to the business to justify that, without exception, they were stumped. Astonishing.

The benefits of incorporation

So, you’re a partnership and want to incorporate. Why bother? These are some of the key benefits:-

• differentiate between owners and employees
• remove that age-old and deeply unhealthy obsession with the word partner
• give limited liability to the owners of the business
• tax benefits (including directors loans for the equity partners who ‘sell’ the partnership to the limited company
• be ready to allow non-lawyer personnel to hold a genuinely comparable seniority within the business as the solicitors that also work within it
• allow the managing partner to call himself CEO (only kidding)

OK OK, so a partner in an important big firm accidentally stumbles across this article and brings himself to read it. Aha he (or she) says, but Neil Quantick was only a little old sole practitioner. Incorporation was easy for him, it couldn’t possibly work for a jolly big (and much better) important firm like ours. Really? In fact, I reckon the benefits that we’re seeing already would be magnified immeasurably in the context of larger firms.

The practicalities

The switchover really wasn’t that difficult. Of course, ongoing clients and suppliers need to told, and stationary etc updated to reflect the change. The SRA need to re-register the new firm, and of course, there’ll be changes with the bank too. Our accountant organised the setting up the new limited company, and generally was on hand to deal with/advise on the accounting nitty-gritty of ending one company and starting another.

Fresh start

Having sold the business that I’d grown, the limited company is now permitted to repay me the purchase price over a period of time, and with considerable tax benefits along the way.
The business is now run by its directors (of which I am one) like most other businesses! Internally and externally the blurred and unhealthy distinction between ownership and management has gone forever. In time, lawyers and non-lawyers can be seen to be of genuinely equal standing within the business, without non-lawyers being seen to be somehow the second rate to those jolly clever, very important legal bods.

Hoorah for change. Partnerships are dead, long live incorporation…

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