As a prospective law student with limited knowledge of law firm operate, I’m curious: if a firm follows a traditional company structure, wouldn’t the addition of a new partner dilute the equity of existing partners? Moreover, where does the equity for the new partner come from? Are buy-ins commonly used to safeguard the equity of existing partners?
In: Economics
Associates being made partner have made the firm’s pie bigger by more than their slice will reduce it.
If the firm gives 20 partners $400,000/yr ($8 million total) and a new associate lands clients that boosts the overall profit sharing to $9 million, the other partners aren’t going to grouse about getting a smaller share of $9 million (their individual payouts are rising by 5% plus any increases their own efforts add).
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