I’m a senior associate at a biglaw firm with a single tier partnership. New partners are required to make a significant capital contribution in their first year. What happens if I leave to go in-house after a couple of years? Do I get this back with interest?

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They have to buy you out, so you get whatever the value of your shares is.

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Yes. At least that is how it has been explained to me.

Our firm also has relationships with banks offering very generous financing options. Think low interest only for 4-5 years or more. So it may not even need to be your money that is tied up.

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You’d have to read the partnership agreement, which they won’t let you see until you make partner. At my last firm, even though new equity partners had to buy in right away, if that partner later left, the firm could take something like three years to pay it back.

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Helpful, thanks. But it’s still my money, at the end of the day, just locked up and illiquid, right?

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Same on the banks.

You would get the money back unless there is a reason to hold it back and one of them is clients not having paid. So you have an interest to have a clean book unless your new firm makes you whole.

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Generally yes, you will get that money back as it represents your personal equity in the firm. But as far as whether that amount increases in value (earning interest, etc.) or the amount of time it takes until the firm gives it back to you (wait until the end of that fiscal year, maybe 50% now and the rest two years later, etc.), and so on is dependent on the partnership agreement and there probably isn’t a uniform practice.

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Again it varies by firm and partnership agreement. Not all firms even have “shares.” And those that do there are probably differences based on the structure of the business. For example whether it’s an actual professional “corporation” that issues shares or a partnership where “shares” is more of an abstract accounting concept used in how they maintain their books. In my firm we don’t have shares at all. Your capital balance is just tracked in your capital account as part of the firm’s accounting. Your buy-in is tracked there as well as adjustments based on your distributions (money coming to me) and deductions (partners have to pay for their own parking). So your capital account just reflects a series of debits and credits in your account rather than some value of a “share.” But there is a lot of variety there and no one size fits all approach.

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At my firm you would get that money back if you left but not with any interest. Payment for the “goodwill” comes via the retirement program which you’d lose if you compete.

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