How private practices can effectively bring on new partners.
As a professional practice grows, a common way to facilitate that growth is to take on new partners. A physician's practice, for example, may add new doctors, while a law firm may acquire another law firm — with each naming those firms' top associates as partners.
But the decision to add partners shouldn't be taken lightly. Beyond making sure any new partner is a good cultural fit for the firm and upholds his or her expected duties, it's important to structure the partnership agreement carefully and include the right provisions. Here are a few best practices:
Be selective
A partner will have an ownership stake in the practice and directly affect the firm's reputation and success. Before adding anyone as partner — even if that person is distinguished in the industry — it's important to ensure they deserve the title and will uphold their end of the deal. Keep in mind there are alternatives to making someone a partner: They could be named a "junior partner," for example, meaning they don't receive equity in the firm yet can still use the partner title. Junior partners typically have fewer responsibilities and less stress than senior partners — which some associates may actually appreciate. Generous compensation models can also be designed that give associates incentive to work hard and stay with a firm without naming them as partner. Many practices expect an associate to have a certain number of years' industry experience and meet specific professional benchmarks and goals before being made full partner.
Clarify roles
The partnership agreement should describe each partner's role and responsibilities — to avoid confusion and create accountability. One partner may be responsible for overseeing the practice's administrative staff, while another may be responsible for marketing or selecting technology. Spelling out roles helps the partnership run smoothly and prevents miscommunication. The partnership agreement should also explain how decisions are made: Do the partners vote on major decisions affecting the practice and, if so, does every partner's vote receive equal weight?
Set rules for departure
What happens if one partner wants out, retires or even passes away? Practices must consider how they will deal with such situations — as they're not uncommon — and structure their agreement to ensure a smooth transition. For example, how will that departing partner (or his or her estate, in case of death) be paid out? Some partnership agreements also require that partners retire by a specific age.
It's important to work with experienced, qualified financial and legal professionals as your practice grows, especially if you are entering into any sort of formal agreement. Your Wealth Advisor can connect you with Business Bankers at Regions who can guide you through the financial considerations to help ensure you have the resources you need.
