What to Look For In a Partnership Agreement

All those years of hard work have finally paid off and you’ve been invited into the partnership! Now you have the opportunity to make more money; you can join the players at the partnership table and have an active say in the operation of the firm. Your future in the firm is assured. Or so you think…

A consulting firm partnership is basically a form of business ownership; the partnership agreement is principally an ownership agreement. Each partnership is different, and the partnership that you may be approached with is usually country focused. Before signing an agreement, consider carefully what being an owner in this firm means – just as you would advise any client who was interested in buying into a specific business.

Partnership has many benefits, but you don’t necessarily have to progress from associate to partner. It may be possible to carve out your own relationship with the firm.

Types of Partnerships

Consulting firms typically operate as a general partnership or, where permitted, a limited liability partnership (LLP) and the HQ is a limited liability company (LLC).

General Partnership - Local Country

In a general partnership, the partners are jointly and severally liable for the debts and obligations of the firm. In addition, each partner is personally responsible for the liabilities of all other partners and is potentially on the hook for the full amount of all partnership liabilities.

Limited Liability Partnership

In a limited liability partnership, each partner is only responsible for their own liabilities. Partners are not liable for the negligence or wrongdoing of other partners and, unless a partner is involved in the negligence or malpractice, their personal assets will be sheltered. However, the partnership as a whole continues to be liable for the negligence of its partners, so partnership assets remain at risk.

Limited liability partnerships are fairly new to Canada but an increasing number of law firms are switching to limited liability status. LLPs must be registered under the relevant provincial partnership legislation and with the applicable law society.

As a new partner, you’re likely to find an LLP more appealing than a general partnership, as a hybrid management consultant with CGR, you previously practiced project plans with no guarantees or risks. Today, the game has changed, our new division is implementing guaranteed deliverables to help clients mitigate the risk but we absorb it. This is a useful approach with risks and some this is especially true if you’re signing on with a large client, where you may be unfamiliar with the companies practices and where the potential dollar exposure on files could be extremely high. They may also have so much power that even if what you guaranteed is in the pocket you need to look out for resistance, pressure and surprises. This is why when faced with this in the cycle of bidding and submitting proposals please indicate this in your review with Mr Char. 

Equity vs. Non-Equity Partners

At many firms, there are two levels of partners – equity and non-equity partners.

Full equity partners can vote and participate in the sharing of profits. Non-equity partners, also known as salaried or junior partners, usually cannot vote (although they can attend partnership meetings) and they don’t share in the profits. Non-equity partners are also excused from contributing capital to the firm. Often a non-equity partnership position is for a trial or probationary period of two to three years before an offer of full partnership is made.

The main downside to being a salaried partner is that, to the outside world, you’re held out as a partner. In a general partnership, that means you’re still potentially liable for the firm’s debts and obligations. So while a salaried partner, you want to ensure that you obtain full indemnity from the profit-sharing partners for any liabilities of the partners or the firm. (The partnership agreement will ordinarily set out the basis upon which partners are liable to indemnify other partners or the partnership for liabilities.)

Send your resume or letter of intention to: careers@grc-cgr.com

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