I’m not an expert in how the partnership system but I don’t see much benefit of a lawyer buying into a partnership via the traditional method versus them spending the same money to buy shares on market in a publicly listed firm.
Note that buying into a partnership seems more equivalent to buying shares and not equivalent to an employee share scheme. Correct me if this is wrong....
Advantages of working for a publicly listed employer e.g. Shine. And buying on market:
1. In a publicly listed company the price of shares is determined by open market, while in the partnership model the cost of your buy in is determined by your employers (the people selling you the shares). It seems you would get a fairer deal in the former case.
2. In the partnership system there is a barrier to entry. Your employer must approve of you buying in. While in a publicly listed company ANY staff member can buy into the company (from the CEO to the janitors)
3. In a publicly listed company Your asset is more liquid. i.e. i assume it is much easier to sell and trade shares than it is to sell your partnership. additionally it would be easier to sell a part of your position.
4. In a publicly listed company you can buy as much as you like provided you have the funds. In a partnerhsip the size your share is determined by agreement with the other partners. The size of a partnership means that buying in is financially prohibitive.
5. Publicly listed companies are accountable to the market and subject to more stringent reporting and compliance requirements to protect the shareholder
6. Because of the high cost of buying into partnerships lawyers often borrow the buy in amount from their employers and are therefore more likely to go into debt which may make less financial sense than slowly building up a long term position in a
Technically they don’t need to buy in, but there is pressure to do so.
Advantages of traditional partnership model:
1. A system is often in place to allow new partners to pay their buy in through their future wages.... effectively borrowing the buy in money from their employer. In theory someone could take out a large personal loan to buy shares on market. Not sure how the fees and interest would compare but i assume (without evidence) the partnership model win this specific scenario.
This point may seem to contradict point 6 of other list but is a different scenario since people buying on market do not NEED to go into debt while in most cases a partner would need to.
2. Private companies Company aren’t subject to pressure from the market and do not have the same reporting overhead. In theory this would lead to less short termism in company strategy. Additionally there is extra overhead in reporting to market and meeting compliance requirements in a publicly listed company.
3. Prestige of being called a partner
Am i missing anything here? The way i see it the main reason high flying lawyers prefer the partnership model is point 3. I.e. prestige. That and old fashioned thinking / herd mentality.
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