What happens to the buy-in once a Partner leaves? I have an equity partner position offer from a Big4 company and I need to buy-in, which is equivalent to Y1 target comp. The buy-in is in the form of a bank loan which the company takes out in my name and they cover all interest payments. I am curious as to what happens when I eventually exit the partnership. Will I get the buy- in amount back as the loan is against my name?

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The capital is in your account and yours when you leave. The loan is also yours and will have to be repaid. If they are the same then they'll wash. If you pay back some of the loan assuming you stay for a bit then you'll net the difference.

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Most of the Big 4 don’t have “appreciation” for capital. You contribute an amount of capital to a capital account which is usually indexed to all or part of your comp (my firm is $x * # units). The value of the units isn’t relevant and therefore there is no appreciation.

Might be different at your firm.

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Yes you pay off the loan at cost rate, and will be returned at the cost rate less what you still owe to the bank. You pay rate less prime but actually interest on rate + prime usually. You will have have taxes on accrued income vs book. Hope this helps.

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Only risk is company goes bust. Capita is gone and you still hold debt. Almost never happens. Except Arthur.

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Value of equity should increase over time. From my experience, it is a great investment

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Might depend on circumstances of your departure. Some firms have a “bad leaver” policy, which applies when being terminated for cause or leaving to competitors. In that case, usually you get your money back but might not be entitled to appreciation.

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Depending on the firm, leaving is not so easy. A friend left kpmg and they made them wait for 6 months - so it’s as much about $$ as how much they don’t want you moving.

In general it’s pretty rare for equity owners to leave it’s typically a “retire out” plan, there are exceptions but typically <10% leave as you’re suggesting.

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The capital contribution is equivalent to first year compensation?

Depends on the firm

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