when two partners isn’t enough and three is too many
the pitfalls of equity allocation and reallocation.
by bill reeb and dominic cingoranelli
i want to address the issue of equity – how it is commonly allocated to begin with, and then making adjustments to it over time.
for many firms, the idea in the beginning is that “all the partners are the same, so their ownership should be the same.” when the firm starts out with only a shingle, this is a very fair premise. so, for the sake of this column, let’s start out with a two-partner firm and build from there, talking through the common issues that arise in the area of distributing equity ownership.
more on performance management: develop your employees or suffer the consequences | cpa firm performance assessments: 15 core competencies, 21 questions | how to target what skills to develop now | what having your employees’ backs means | 5 harmful management attitudes (and how to fix them) | do cpa firms need management or leadership? | job 1 for the practice owner: client management
start with two
the most common approach would be for the two partners to split the ownership 50/50. the reason why this often works so well is because the two people who join together often are brought together because of their complementary skills. for example one might be very technically competent and the other more marketing savvy. together they make a great team – one, without the other, is less effective.
every employee, for developmental purposes, needs to directly report to somebody.
