Best Practice: Law Firm Structure - Sole Owner vs Having Partners
Asked and Answered
By John W. Olmstead, MBA, Ph.D, CMC
Q. I am the owner of an eight-attorney insurance defense firm in San Antonio, Texas. I have been practicing fifteen years. I am forty-five years old. Many of my peers in firms my size are in partnerships. Is my situation unusual? Should I consider having partners?
A. Years ago, I would have said that a firm such as yours would be a partnership or other organizational form with multiple equity owners. This has changed. I am working with more firms your size and larger with sole owners and no other equity owners. One such firm has twenty-five lawyers and seventy-five support staff.
I am assuming that this has worked well for you. You have the benefit of financial leverage and not having to share the pie with other equity owners. You call the shots and don't have to share decision making with others. You probably are earning a nice income.
At your present age, there is nothing wrong with continuing this for awhile. However, eventually you will have to consider your succession strategy, how you will exit the practice, and to whom you will pass the baton. The other issue is a career advancement strategy for your existing associates. Some may expect to eventually have an ownership stake in the firm. Your associates need to progress in their careers - not just as technicians - but also as business men and women and managers.
Don't wait to long to begin this process. However, resist the temptation to make everyone an equity owner. In a insurance defense firm with eight attorneys I would try to maintain a ratio of four associates to each equity owner - thus no more than two - maybe three equity owners.
John W. Olmstead, MBA, Ph.D, CMC, (www.olmsteadassoc.com) is a past chair and member of the ISBA Standing Committee on Law Office Management and Economics and author of The Lawyers Guide to Succession Planning published by the ABA. For more information on law office management please direct questions to the ISBA listserver, which John and other committee members review, or view archived copies of The Bottom Line Newsletters. Contact John at firstname.lastname@example.org.