Today’s topic is funding partner contributions to the firm’s capital. Specifically, how does one fund those contributions? And since the question is empirical, we have a poll, to which I invite all familiar with their firm’s practice to respond.
A brief prefatory word: Associates, non-lawyers, and others may not realize that partners routinely are expected to make capital contributions to the firm as a condition of becoming, or remaining, partners. But it has long been the all but universal practice; it’s typically one of, if not the, cheapest sources of capital for the firm, and the expectation seems not unreasonable that partners can contribute not just blood, toil, tears, and sweat, but return some of the income they collect from the firm in the form of a capital investment to meet firms’ needs for working capital and to help defray what can quickly become very substantial investments in building out leaseholds, buying hardware and software, etc.
There is a lurking downside to this: Can the partner expect to get the money back? By and large, as long as firms are going concerns, there shouldn’t be a problem. Paid-in capital can be repaid upon or after retirement out of funds collected from, among other sources, newly admitted partners ponying up their own capital contributions. But if the firm goes belly-up—read to the end for a one-year-later coda on Coudert—all bets are off.
But, without further ado, to the poll:
Now, for the sad news from Coudert. Letters reportedly went out to all the firm’s former partners informing them that they would not be getting any of their capital back—which could represent a hit of as much as $350,000 for some partners. As the cheeky UK site, "Roll On Friday" illustrated the story:
Don’t forget to vote!
