understanding what your partnership agreement should i nclude joel sinkin, president
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Understanding what Your Partnership Agreement Should I nclude Joel Sinkin, President Transition Advisors. Accounting Transition Advisors. National Consulting Firm working exclusively with accounting firms on issues related to ownership transition. Transition Advisors, LLC. - PowerPoint PPT PresentationTRANSCRIPT
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Understanding what Your Partnership Agreement
Should IncludeJoel Sinkin, PresidentTransition Advisors
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Accounting Transition Advisors
National Consulting Firm working exclusively with accounting firms on issues related to ownership
transition
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Transition Advisors, LLC
Partners and Associates
Joel Sinkin [email protected] President631-493-0022
Terrence Putney [email protected] CEO866-279-8550
Chris Frederiksen [email protected] National415-924-3100
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Transition Advisors, LLC
Partners and Associates
Bill Carlino [email protected] Managing Director – National Consulting Services914-273-4327
Mark Basinski [email protected] California, Arizona, Nevada, Oregon, Washington, Utah866-279-8550
Russ Best [email protected] Texas, Colorado, Missouri, Kansas913-962-2563/214-453-1200
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Transition Advisors, LLC
Partners and Associates
Nancy Egan [email protected] Managing Director – National Consulting Services814-807-1290
Peggy Tyers [email protected] Toronto, Ontario Province905-823-1585
Michael Farinelli [email protected] National Business Development913-866-8550
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If there are 50 things you need to think about in a transaction…….
……the smartest of us will think of only 35
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Key Elements to a Partnership Agreement
1. Compensation
2. Governance
3. Death/Disability, Retirement
4. Termination
5. Unwinding the Partnership
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Goals of Partner Compensation
• Motivate partner behavior to achieve desired strategic and financial results
• Create motivation for top performance by rewarding modified behavior
• Build a strong partner team through retention of the best performers, removal of non-performers, and attracting new talent
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Types of Compensation Plans
• Equal• Lockstep• Pure Formula• Cross Evaluation
• Equity-based• Committee-based• Leader-based
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Types of Compensation Plans
◊ Equal• Often used in new partnerships• Promotes collegiality• Requires substantially equal contribution
to be sustainable• Long term, often fails to promote high
performance
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Types of Compensation Plans
◊ Equity-based• Often used in new partnerships• Promotes collegiality• Requires substantially equal contribution
to be sustainable• Long term, often fails to promote high
performance
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Types of Compensation Plans
◊ Lockstep• Based on seniority• Often similar to Equity-based as equity
normally accrues based on seniority• Disguised as unit-based plan where units
accumulate over time• Over time tends to reward for past
performance more than current
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Types of Compensation Plans
◊ Pure formula• An accountant’s dream• Relies mostly on pre-determined,
objective measures• Promotes clarity and certainty• Leaves out hard to measure, subjective
elements of performance• Can be manipulated in many cases
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Types of Compensation Plans
◊ Cross Evaluation
•Relies on each partner evaluating other partners and allocating compensation•Has appearance of fairness-democratic•Requires knowledge by all partners of other partners’ contribution•Tends to lump most partners into an average rating at the expense of recognizing outliers
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Types of Compensation Plans
◊ Leader-driven• Managing Partner decides• Requires strong managing partner and
trust in their decision-making ability• Most flexible … can be very effective• Often lacks transparency which can lead
to mistrust and lack of needed feedback
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Types of Compensation Plans
◊ Committee-driven• Appropriate for large firms• Works well when knowledge of all
partners’ contributions is not readily available to each partner or the managing partner
• Allows for flexibility and fair vetting of issues
• Can lack needed transparency• Can be inefficient
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Equity: What Does It Mean?
• Compensation• Profit Sharing• Decision making• Internal buyouts• External buyouts
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Different Types of Partners?
• Full Equity – Senior• Full Equity – Junior• Income• Of Counsel• Using the term Principal
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Governance
• Decision making• Unanimous vs
Super majority vs Simple majority
• Financial Commitments
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Governance
By way of example …•Super majority
• Admission of new partner
•Simply majority• Expenses in excess of certain amount
•Unanimous• Dissolution or sale
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Retirement◊ Voluntary
• Mandatory age / Vesting
• Partners desiring to stay on after retirement and how that impacts their role, compensation and buyouts
• Valuing equity• Equity
• Compensation
• Funded vs unfunded
• Work backwards formula
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Retirement◊ Terms
• Payout periods
• Retention periods
• Tax structure
• Caps
• Penalty buyouts• Premature exit
• Exit without appropriate notice
• Getting “booted” out
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Death or Disability
• Definition of temporary disability vs permanent• Where insurance fits in re disability
• Death• Where insurance fits in re death
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Termination
• Voting• Grounds• Non-Competes• What is cause?
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De-Merger Clauses
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Other Thoughts
• External Sale/Dissolution
• Roles and responsibilities
• Hold harmless
• Non-competes
• Arbitration vs lawsuits
• Restrictive covenants: Leaving with or without clients
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Transitioning ClientsWhat are the clients’ fears?
• Is the partner/owner I trust still there?
• Is it going to cost me more money?
• Is the staff I am accustomed to working with part of the successor firm?
Change IS A DIRTY WORD
THE EMPHASIS NEEDS TO BE ON continuity
NOT THE LOSS OF, BUT THE gain OF …
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Miscellaneous
• It is a living agreement?
• Limit retirement timing
• Create benchmarks, time frames
• Replace the role, not the body
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For More Information
Please visit our website for resources including
FREE reports, whitepapers and case studies.
Joel [email protected]
1-866-279-8550www.TransitionAdvisors.com