Status: look before you leap, writes Fergus Payne

Typically, most solicitors aspire to become a partner in their chosen firm. Being a partner implies a degree of excellence, ownership and management of the business and an entitlement to a share of profits.


However, anyone with such aspirations should appreciate that the benefits need not be enjoyed by all partners in equal measure and a representation of partnership status can have unpleasant consequences if you do not actually have it.


Partnerships normally have distinct categories of partner,


with individuals in separate categories enjoying different rights and benefits concerning, for example, the entitlement to participate in the management of the business and to share in the profits. These categories are frequently distinguished internally by titles such as ‘equity partner’ and ‘senior equity partner’ on the one hand and ‘salaried partner’ and ‘fixed-share partner’ on the other.


Although these titles are without legal definition, the first two tend to identify those who enjoy the full benefits of being a partner, whereas the other two generally identify those who have limited rights.


So, for example, a partnership agreement might provide that ‘equity partners’ will share profits and, therefore, benefit personally as profits rise, while ‘fixed-share partners’ will share profits only up to a pre-determined amount.


Therefore, it is important to consider what compensatory provisions exist for the partners with limited rights. For example, does a partner with a limitation on the right to participate in sharing profits enjoy the benefit of an indemnity from ‘equity partners’ in respect of the burden of losses?


Careful consideration should also be given to situations where an individual is never intended to be a partner but, for a variety of reasons, is represented to the outside world as one (either by the partners or by the individual).


Their name could be on the firm’s notepaper or the title ‘Partner’ may appear on their business cards and correspondence. But, within the partnership, it is understood and agreed that the individual is an employee and not a partner.


Whatever the perceived advantages of this, such an employee may become financially liable to those that deal with the partnership as if they were actually a partner. Given that partners have unlimited liability, the consequences could be very serious indeed.


So before rushing to become a partner or use the title, one should think carefully about what it actually means – you could get more (or less) than you bargained for.


Fergus Payne is an employment partner at City firm Lewis Silkin