{"id":49256,"date":"2016-07-04t05:00:57","date_gmt":"2016-07-04t09:00:57","guid":{"rendered":"https:\/\/48e130086c.nxcli.net\/?p=49256"},"modified":"2024-08-14t09:35:40","modified_gmt":"2024-08-14t13:35:40","slug":"what-does-buy-in-buy","status":"publish","type":"post","link":"\/\/www.g005e.com\/2016\/07\/04\/what-does-buy-in-buy\/","title":{"rendered":"what does buy-in buy?"},"content":{"rendered":"

\"handshake<\/a>plus: how to account for partners’ capital.<\/strong><\/p>\n

by marc rosenberg<\/i>
\nhow to bring in new partners<\/i><\/a><\/p>\n

what do new partners “get” for their buy-in?<\/p>\n

this is a question asked, justifiably, by many new partners when they are informed of the buy-in requirement. firms should be prepared to respond.<\/p>\n

more on partnership: <\/b>how to structure partner buy-in<\/a> | keys to bringing in new partners<\/a>\u00a0| browse all at partnerinsider.com<\/a><\/span><\/p>\n

\"goprocpa.com\"exclusively for pro members. <\/span><\/strong>log in here<\/a> or 2022世界杯足球排名 today<\/a>.<\/span><\/p><\/blockquote>\n

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  1. first and foremost, new partners essentially get to be a member of the “club.” they get to become an owner of an organization that operates a highly profitable, growing firm that will provide them with a substantial<\/em> income stream for 20-40 years that is well above what most people earn in other jobs.<\/li>\n<\/ol>\n

    <\/p>\n

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    1. they get interest on their investment as part of a layer of the partner compensation system, usually at prime plus 3-5 percent. this, of course, only applies in cases where the firm’s compensation system has a tier for interest on capital.<\/li>\n<\/ol>\n
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      1. they get their capital back if they leave the firm.<\/li>\n<\/ol>\n
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        1. they share in the value of the firm and its increase in value over time. when they retire, they will receive a stream of payments that may equate to as much as three times their compensation.<\/li>\n<\/ol>\n
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          1. they get the recognition of being a partner, and along with it, a say in how the firm is run and a vote on decisions.<\/li>\n<\/ol>\n

            ownership percentage<\/strong><\/p>\n

            a fundamental and critical tactic in bringing in new partners is to sever, as much as possible, the link between ownership percentage and any of the following:<\/p>\n

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            1. allocating partner compensation: partner compensation allocation should be based mostly on the performance of each partner, relative to one another, and not on ownership percentage.<\/li>\n<\/ol>\n
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              1. accumulating retirement benefits: partners’ retirement benefits should be based on what each partner contributes to building up the value of the firm, not on ownership<\/li>\n<\/ol>\n
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                1. determining the buy-in amount.<\/li>\n<\/ol>\n
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                  1. allocating cash\/credit for the value of the firm upon a sale or merger: if the firm is sold or merges out of existence, the amount each partner receives should be determined in the same way that retirement benefits are determined, not by ownership percentage.<\/li>\n<\/ol>\n
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                    1. voting: regardless of the ownership percentage disparity, voting should be one person, one vote for routine decisions. important decisions such as changing the partner agreement, determining how to allocate income, admitting a new partner, merging, etc., may need to be voted on by ownership percentage to avoid having the biggest producers ousted by a group of the firm’s lower producers.<\/li>\n<\/ol>\n

                      if the buy-in is made over a period of years, the new partner’s ownership percentage should only increase as the money is paid in.<\/p>\n

                      partners’ capital<\/strong><\/p>\n

                      regardless of whether it is a corporation or a partnership, there is a substantial amount of accrual basis capital in a firm. all the partners “own” some portion of that capital.<\/p>\n

                      there are several methods for determining how much capital each individual partner “owns.”<\/p>\n

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                      1. the old-fashioned partnership accounting method. <\/strong>if you are a partnership, this is self-explanatory. if you are a corporation, then “off the books” you should maintain a schedule that emulates partnership accounting \u2013 partner’s capital account increases with his\/her capital contributions and allocations of income and decreases when cash distributions are made.<\/li>\n<\/ol>\n
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                        1. each partner’s share of capital is in the ratio of their partner compensation. <\/strong>two important caveats:<\/li>\n<\/ol>\n