Reallocating Partner Equity

Source: Public Practice E-News
 

The following recap, which includes excerpts from the article referenced below, is presented with permission from the Texas Society of Certified Public Accountants.

In this article Bill Reeb and Dom Cingoranelli, Jr., tell how they typically approach the equity reallocation process. Included are:

• Compensation history.
• Partners' ratings of one another's skills and leadership ability.
• Partners' suggested allocations of equity ownership percentages.

Read the complete article for specific considerations within each of the above three categories.

Making the Reallocation
Summarize ratings using complex spreadsheets, content analysis and other methods. Determine what relative weight should be accorded any of the factors based on the unique circumstances of the organization.

Most of the time, relatively more weight is given to the "Partners' Ratings of One Another" because going forward, if the firm is to flourish, you have to build it on a strong foundation of people whom others are willing to follow. The leaders people want to follow generally are willing to not only talk about the core values of the organization, but to live up to them and lead by example on a daily basis.

Equity ownership allocation is a critical success factor if you expect your firm to continue after you leave. For many firms, reallocation of equity ownership is or will be an important part of succession planning. While it can cause some anxiety for your owners' group as you go through the process, it's better to confront the issues now, to help ensure that your firm is in good hands after you leave. It's not necessarily easy, but it must be addressed for long-term success.

To read the complete article, including links to past articles in this series, click here.

From Public Practice E-News, "Equity--Allocation and Reallocation-Part 3," Texas Society of Certified Public Accountants, May/June 2009, http://www.tscpa.org/.