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Equity Partners Vs. Non-Equity Partners

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After years of undergraduate and law school studies, a lawyer must then navigate the professional and political waters of a law firm, diligently striving for the brass ring of partnership. Some law firms offer equity and non-equity partnerships. Each form of partnership has advantages and disadvantages, in prestige, job security and income.

Law Firm Titles

Law firms have a specific hierarchy, which includes lawyers, their legal staff and personnel who support the business operation.

Partners own law firms. In many firms, at least one partner is a founder. A managing partner is the head of the firm.

Associates are lawyers who do not own a share of the firm. Typically, associates work at a lower hourly rate than partners do. Law firms often offer partnerships to associates after several years of service.

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Some busy law firms hire contract lawyers, who typically earn an hourly wage. Oftentimes, firms hire contract lawyers because they have a particular expertise. For example, a personal injury firm might hire a contract environmental lawyer to work on a case involving damages caused by a chemical spill.

Law firms refer to semi-retired lawyers as “of counsel” lawyers. Most of counsel lawyers work part time.

Lawyers turn to law clerks and paralegals to help them prepare cases. Typically, law students work as law clerks, for pay or academic credit. Lawyers often task clerks with research or other time-consuming duties.

Paralegals have knowledge of administrative and court procedures. They often help prepare legal documents or perform critical research.

Many lawyers have legal assistants or legal secretaries. Both positions support lawyers with the daily routine of working with clients and managing business aspects such as organizing and filing documents, fielding phone calls, answering emails and appointment setting.

Some law firms employ investigators to investigate criminal activity such as extortion, embezzlement or fraud, or to conduct surveillance on subjects such as cheating spouses or negligent businesses at fault for personal injuries.

Large firms employ professionals such as office managers, bookkeepers, billing specialists and marketing managers.

What Is an Equity Partner?

Many law firms offer their lawyers equity partnership and non-equity partnership. An equity partner is an owner of a law firm. Some equity partners found their law firms, while others start as associates. Typically, lawyers work for a law firm for three to 10 years before becoming a partner. A lawyer cannot work her way up the company ladder to become a partner; she must receive an invitation.

When a lawyer receives a partnership invitation, he must “buy in” to the firm. Typically, buy-in terms require paying tens of thousands of dollars. Some firms offer loans to partners who cannot afford the buy-in cost.

As a part owner, a partner receives a cut of the firm’s profits. The Internal Revenue Service (IRS) defines an equity partner as a person who receives more than half of her salary from a firm’s profits. In some cases, lawyers must accept a reduction in their base salaries when they become partners.

Typically, equity partners earn higher incomes than associates or non-equity partners do. After becoming a partner, a lawyer’s income can increase quickly, if he works for a successful, high-profit firm. In some firms, equity partners charge their clients higher hourly rates than associates or non-equity partners do. Equity partners have a voice in the direction of the firm and voting rights on issues such as pay raises and practice areas.

Although equity partners enjoy higher incomes and the prestige of ownership, they can face disadvantages, too. Equity partners who receive the majority of their salary through firm profits can lose income when profits decrease. Also, equity partners who only receive profit payments may be subject to self-employment tax rates, which are typically higher than wage employment rates. Depending on a firm’s business registration, equity partners can face personal liability if their firm has financial problems.

What Is a Non-Equity Partner?

If a lawyer works for a firm for many years without a partnership offer, the firm may ask her to resign. However, some firms offer her a middle step to full partnership, as a non-equity partner.

Non-equity partners can receive their salary in two ways, depending on their firms’ structure and policies. A non-equity partner may receive a salary, with no firm profits, or a salary, plus profit payments that account for less than 50 percent of his total pay.

Often, non-equity partnership is like a stepping-stone to equity partnership. Typically, firms offer non-equity partnership to lawyers who have worked for several years as an associate. If the lawyer continues to perform well, the firm might offer her equity partnership after working a few more years. Non-equity partners usually receive the same benefits as their associate colleagues, but often earn a higher salary.

Non-equity partners do not have to buy in to the firm and do not face financial liability if the firm goes belly up. Non-equity partners do not have full voting rights and often do not have a voice in the firm’s management, but can use the prestigious “partner” title.

Non-equity partnership positions allow equity partners to receive more of the profits and gives non-equity partners more time to gain experience. By offering non-equity partnerships, firms can also retain associates who might jump ship if they feel passed over for equity partnership.

Some firms offer temporary and permanent non-equity partnerships. A permanent non-equity partnership offer can indicate job security or second-class status, depending on the politics of the firm. In many firms, temporary non-equity partnerships have a set period on the road to full partnership.

How to Become a Lawyer

To become a lawyer, you must earn a bachelor’s degree and a Juris Doctor law degree. Typically, undergraduate programs take about four years to complete, while most law school Juris Doctor programs last about three years.

Most law schools do not require applicants to hold an undergraduate degree in a specific subject. However, subjects such as economics, public speaking, history, government and English can lay a solid foundation for a law career.

Expect stiff competition when applying for law school. To avoid potential licensing problems after graduation, always choose a law school accredited by the American Bar Association (ABA). Typically, law schools look for students with a well-rounded background, assessing their grades, extracurricular activities, volunteer work and Law School Admission Test scores. Most schools require students to interview before an admissions board, who make final selections.

Most law school programs include general coursework in contracts, legal writing, ethics, constitutional law and civil procedure. You can also take classes in areas of interest such as environmental, tax, civil rights or labor law.

Bar Exams and Licensing

After completing law school, you must pass your bar exams – tests administered by the state in which you wish to work – in order to obtain a law license. If you want to practice law in more than one state, you must take bar exams and obtain a license in each state.

Bar exams differ by state, but typically involve one or more written tests. State law admissions boards also examine an applicant’s history. Indiscretions such as academic misconduct or felony convictions can disqualify an applicant.

Many states also require lawyers to periodically take continuing education classes to retain their law licenses.

Lawyer Salaries

In 2017, lawyers made a median salary of nearly $120,000, according to the U.S. Bureau of Labor Statistics. The median income represents the center of the lawyer pay scale. High earners took home more than $200,000, while lawyers at the lower end of the pay scale made around $57,000.

Lawyer Employment Outlook

In 2016, more than 790,000 lawyers worked in the United States, according to the BLS. The Bureau expects employment opportunities for lawyers to increase by around 8 percent, from now until 2026. However, client scrutiny over the cost of legal services may lead law firms to outsource some work to overseas legal professionals, or reassign certain tasks to in-house legal assistants and paralegals.

Employment increases may occur in corporate counsel positions, as corporations such as healthcare, financial and insurance companies opt for hiring in-house lawyers instead of retaining law firms. The federal government may also increase hiring of defense and prosecution lawyers for cases involving federal crimes.

About the Author

Michael Evans’ career path has taken many planned and unexpected twists and turns, from TV sports producer to internet project manager to cargo ship deckhand. He has worked in numerous industries, including higher education, government, transportation, finance, manufacturing, journalism and travel. Along the way, he has developed job descriptions, interviewed job applicants and gained insight into the types of education, work experience and personal characteristics employers seek in job candidates. Michael graduated from The University of Memphis, where he studied photography and film production. He began writing professionally while working for an online finance company in San Francisco, California. His writings have appeared in print and online publications, including Fox Business, Yahoo! Finance, Motley Fool and Bankrate.

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