Partners at failed law firms lose hundreds of thousands of dollars

May 24, 2012 Here is an interesting article about the losses suffered by law firm partners when large law firms fail. Of course, partners generally have a greater financial buffer to protect them than do associates and support staff, and when a firm goes bust theyare arguably not the worst affected. Nevertheless, when a firm goes under a partner may lose hundreds of thousands of dollars that they paid into the firm upon making partner.

The article looks at the case of Andrew Ness, a construction lawyer at the Washington DC office of Jones Day, who over the course of his career has been an equity partner at three firms that have failed and evaporated his investment.

The first was a small boutique firm, the second was Thelen LLP, which fell over in 2009, and the third was Howrey LLP, which dissolved in 2011.

"I did not see a dime of capital returned and don't expect to see a dime," Mr. Ness said.

The sums paid by partners to acquire an equity stake in a firm can range from 20 to 60 per cent of what a partner expects to earn in a given year. So a young partner might be asked to pay $100,000 to $200,000, while a seasoned lateral hire earning $1 million to $2 million a year might be asked to put in a sum equal to half of what he or she expects to earn in a year. The money is often due upfront, and there are no guarantees that the partner will see the money again if the firm fails.

Read more at online.wsj.com.

comments powered by Disqus