We have had several law firms in the 15 - 25 attorney firm size that are facing financial challenges ask us if they might be suitable candidates for a traditional merger with a much larger law firm.

Don't count on a larger law firm coming to your rescue unless:

1. You have a practice that is strategically important to the larger firm (all practice areas).
2. You have an exceptional bench of superior lawyer talent with mixed age spread.
3. Your firm has had exceptional financial performance and on a par with the larger firm.
4. Your billing rates, methods, and practices are on a par with the larger firm.
5. Your partner earnings are on a par with the larger firm.

Unless the above ingredients are in place the firm may not be a suitable candidate for merger or it might find that the larger firm cherry picks some of the key partners off one by one.

We believe that a non-equity tier gives a firm a way to give associates the professional recognition and status of being a partner without conveying actual ownership and diluting ownership and control. Often a key differentiating factor between equity and non-equity partnership is client origination. Partners that don't originate a sizeable book of business often don't make it to the equity tier. For very small firms a non-equity often does not make sense - for others it often does. If you believe, as I do, that equity partners should be client originators and if you currently have a mix of client originator and non client originator associates with ten years or more time with the firm you may want to consider a two tier structure. You should carefully define, and put in writing, admission criteria for each tier.

Question Our firm is a 8 attorney firm in Fort Worth, Texas. We have two partners - myself and my partner. Our approach to compensation has been based upon our ownership interest percentages which have been adjusted over time based upon working attorney (personal) collections. We have been discussing implementing a formula using working attorney collections and also bringing client origination credit into the equation has well - weighing each equally. Our ownership percentages would be adjusted based upon the fee credit ratio between the two of us. I would appreciate your thoughts on the matter.

Answer: My first thought is whether you are trying to build a firm-first firm or a group of separate practitioners. How will you incorporate other factors such as firm management, business development, mentoring and training associates, etc? If both of you are making roughly equal contributions in these areas your approach might have merit but be careful that you do not head down the path of separate practices - and become a lone ranger firm. My other concern is with client origination - this often gets tricky. With only two partners you don't have anyone to serve in the capacity of attribution police when and if there are disagreements as to origination credit. (attribution committee) So you will have to be able to discuss this subject openly and hopefully upfront. Share origination credit when appropriate, allocate to firm when it appears that a client came to the firm based upon firm brand or name recognition, and consider a 5 year sunset provision whereby the credit reverts to firm or responsible attorneys.

Are you looking for a quick and dirty checklist to use to review the profitability of your practice. Click below for a copy of our Law Practice Profitability Checkup.

We frequently consult and work with law firm clients working on implementing succession strategies that involve the sale of a law practice, merging with another firm, or hiring lateral talent. If you are looking to join up with another firm keep us in mind. We will be posting confidential listings on our website in the near future.