Equity Partner - Type of Equity Partnership

Type of Equity Partnership

In their most basic form, equity partners enjoy a fixed share of the partnership (usually, but not always an equal share with the other partners).

However, in more sophisticated partnerships, different models exist for determining either ownership or profit distribution (or both).

Probably the most common two forms are "lockstep" and "eat what you kill" compensation (sometimes referred to as, less graphically, a "source of origination").

Lockstep involves new partners joining the partnership with a certain number of "points". As time passes, they accrue additional points, until they reach a set maximum sometimes referred to as a plateau. The length of time it takes to reach the maximum is often used to describe the firm (so, for example, one could say that one firm has a "seven year lockstep" and another has a "ten year lockstep" depending on the length of time it takes to reach maximum equity).

Eat-what-you-kill is rarely, if ever, seen outside of law firms. The principle is simply that each partner receives a share of the partnership profits up to a certain amount, with any additional profits being distributed to the partner who was responsible for the "origination" of the work that generated the profits.

British law firms tend to use the lockstep principle, whereas American firms are more accustomed to eat-what-you-kill. When British firm Clifford Chance merged with American firm Rogers & Wells, many of the difficulties associated with that merger were blamed on the difficulties of merging a lockstep culture with an eat-what-you-kill culture.