Been watching suits lately and I’ve gotten to the point in season 6 where they use the buy in fund to finance a settlement, and overall I’m confused as to the idea of what a buy in is. They also mention concealing it from the partners who have left the firm, because if they found out the ex-partners would come gunning for their money. So, what is a buy in, and how does it work if you leave a firm after you’ve paid the buy in? Are you entitled to the money, or does it stay with the firm?
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There’s lots of inconsistent answers because a buy in can mean several different things. There’s no single correct way of buying in. It depends on the law firm and each law firm is set up differently (based on how the partners choose to set it up their business).
Most common buy in is where each partner purchases a percentage of shares (or points) in an existing partnership.
The amount of money is generally arbitrary. It’s meant to reflect a commitment by the new partner. It doesn’t really reflect the value of the firm because most firms dont carry value like a company. Heres why:
-Most law forms don’t retain much money in the partnership. They distribute each year’s profits in the following year.
– The value in the firm is in how much business all the lawyers can generate in future years. But since clients tend to move with the lawyers, so the value is in the lawyers, not the firm.
It’s often just a way of showing commitment to the firm. Partners leave all the time and they are paid out their buy in amount when they leave, either as a lump sum or via partial payments over a short window.
The buy in tends not to change. It would be unfair for Partner A to pay 150K in 2020 and another to be forced to pay 300K in 2023. This would be unfair to the new partner
The $1M buy-in is TV magic mostly. That’s an incredibly high buy in. Perhaps a small handful of firms would require this but buy-ins range from 100k-300k.
Before interest rate skyrocketed you could borrow the buy in or the firm may borrow the money on your behalf. But that’s become much more expensive. I got stinged with the higher interest rates. My interest payments on the buy in loan basically tripled in a single year.
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