Understanding what Your Partnership Agreement Should I nclude Joel Sinkin, President

1. Understanding what Your Partnership Agreement Should Include Joel Sinkin, President Transition Advisors

2. Accounting Transition Advisors National Consulting Firm working exclusively with accounting firms on issues related to ownership transition

3. Transition Advisors, LLC Partners and Associates Joel Sinkin jsinkin@transitionadvisors.com President 631-493-0022 Terrence Putney tputney@transitionadvisors.com CEO 866-279-8550 Chris Frederiksen cfrederiksen@transitionadvisors.com National 415-924-3100

4. Transition Advisors, LLC Partners and Associates Bill Carlino bcarlino@transitionadvisors.com Managing Director – National Consulting Services 914-273-4327 Mark Basinski mbasinski@transitionadvisors.com California, Arizona, Nevada, Oregon, Washington, Utah 866-279-8550 Russ Best rbest@transitionadvisors.com Texas, Colorado, Missouri, Kansas 913-962-2563/214-453-1200

5. Transition Advisors, LLC Partners and Associates Nancy Egan negan@transitionadvisors.com Managing Director – National Consulting Services 814-807-1290 Peggy Tyers ptyers@transitionadvisors.com Toronto, Ontario Province 905-823-1585 Michael Farinelli mfarinelli@transitionadvisors.com National Business Development 913-866-8550

6. If there are 50 things you need to think about in a transaction……. ……the smartest of us will think of only 35

7. Key Elements to a Partnership Agreement Compensation Governance Death/Disability, Retirement Termination Unwinding the Partnership

8. 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

9. Equity-based • Committee-based • Leader-based • Equal • Lockstep • Pure Formula • Cross Evaluation Types of Compensation Plans

10. 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

11. 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

12. 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

13. 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

14. 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

15. 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

16. 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

17. Equity: What Does It Mean? Compensation Profit Sharing Decision making Internal buyouts External buyouts

18. Different Types of Partners? Full Equity – Senior Full Equity – Junior Income Of Counsel Using the term Principal

19. Governance Decision making Unanimous vs Super majority vs Simple majority Financial Commitments

20. Governance By way of example … Super majority Admission of new partner Simply majority Expenses in excess of certain amount Unanimous Dissolution or sale

21. 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

22. Retirement ◊Terms Payout periods Retention periods Tax structure Caps Penalty buyouts Premature exit Exit without appropriate notice Getting “booted” out

23. Definition of temporary disability vs permanent • Where insurance fits in re disability • Death • Where insurance fits in re death Death or Disability

24. Termination Voting Grounds Non-Competes What is cause?

25. When is it appropriate and not appropriate? • How long can they be invoked • Allowing partners to leave with clients • Handling of: • Original clients • New clients • Firm name • Staff • Liabilities • Leases De-Merger Clauses

26. Other Thoughts External Sale/Dissolution Roles and responsibilities Hold harmless Non-competes Arbitration vs lawsuits Restrictive covenants: Leaving with or without clients

27. Transitioning Clients What 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 gainOF …

28. Miscellaneous It is a living agreement? Limit retirement timing Create benchmarks, time frames Replace the role, not the body

29. For More Information Please visit our website for resources including FREE reports, whitepapers and case studies. Joel Sinkin jsinkin@transitionadvisors.com 1-866-279-8550 www.TransitionAdvisors.com