Salaried Partner vs Equity Partner: Key Differences in Law Firm Leadership

As a law firm leader, your options for growth are greater than ever. The rise of consultant lawyers and platform law firms is reshaping the industry. Whether you choose to build a niche practice or scale into a larger firm, your growth strategy will directly influence your business structure. You’ll need to consider your practice areas, how they shape that structure, and ultimately whether to operate as a Partnership, Limited Liability Partnership (LLP), or Limited Liability Company (LLC).

Partnership has been the traditional structure of law firms for many years. As the platform of choice for many law firms, it is essential to understand the partnership roles, especially the differences between equity and salaried partners. Appointing a partner, salaried or otherwise, is critical to a law firm’s strategic growth. Large firms often have more complex partnership structures, including salaried partnerships and equity partnerships, to accommodate their size and diverse practice areas.

This article examines the key elements of equity and salaried partners in a law firm, exploring how these factors impact career planning, governance, and financial structuring. Understanding the different types of partnerships is crucial for law firm leaders, particularly in large firms where partnership models can be more complex and varied. The different types of partners each have their own rights, risks and rewards. The different types of partners each have their own rights, risks and rewards. Finally, we will consider what it means to move from a salaried partner position to an equity partner position.

Career progression in law firms is often shaped by the firm’s culture and the type of partnership structure in place. Let’s start at the beginning of the salaried partner vs equity partner journey with the appointment of a salaried partner.

What is a Salaried Partner?

A salaried partner is an employee of the law firm. Being appointed a salaried partner does not confer any ownership rights or the right to share in the business’s profits. Salaried partnerships are common in law firms, especially as a way to recognise senior lawyers without granting ownership.

As the name suggests, salaried partners receive a salary, which is subject to PAYE deductions. Salaried partners typically do not contribute capital to the firm, and their income structure is based on a fixed salary, rather than profit sharing. Additionally, salaried partners are entitled to holiday and sick pay, as well as maternity or paternity leave. Salaried partners may also enjoy bonuses should they reach agreed targets, but these bonus payments will also be subject to PAYE deductions. Salaried partners may also receive additional income based on firm performance or individual targets.

If a salaried partner is dismissed or made redundant, they have the same right to pursue a claim for unfair dismissal in an employment tribunal as other employees of the firm.

While their views and opinions might be sought and contribute to the firm’s overall strategy, they have no formal voting rights in the partnership. However, salaried partners often play a key role in managing client relationships and supervising junior lawyers.

Although a salaried partner may expect to become an equity partner, this is not guaranteed. However, it is likely to be a stepping stone towards this goal. Salaried partners provide valuable service to the firm but are not paid from profit sharing.

Salaried partners do not contribute to the business’s capital and do not sustain any losses it incurs. If the partnership incurs losses, equity partners may have to forego or reduce their level of drawings. From a liability perspective, salaried partners are generally not liable if the partnership is sued. However, as their “salaried” position isn’t always publicised, any person suing the business is entitled to assume they are an equity partner. Salaried partners should obtain an indemnity from the equity partners in the firm to protect them from litigation against the firm.

We now need to compare and contrast the position of a salaried partner against that of an equity partner.

What is an Equity Partner?

Equity partners own the law firm and its assets. They are entitled to share in the business’s profits and are responsible for the losses. Equity partners do not receive a salary but take drawings against the business’s profits. They are taxed on a self-assessment basis. This means submitting a self-assessment tax return by 31 January each year and paying any tax due in two instalments. the first by 31 January and the second by 31 July.

There is no upper limit to the income equity partners enjoy. That will be determined by the size of the profits of the firm and its share in those profits. It is also important to note that equity partners do not always have equal shares in the business, and a partnership agreement may govern participation in the business’s profits.

Equity partners are typically required to make a capital contribution to the partnership to secure their equity partner status. This is then allocated to the existing partners’ capital accounts in proportion to their ownership percentage in the firm.

The equity partners in the firm make decisions regarding the firm’s future. This encompasses everything from its strategic direction to its office location, as well as the number and types of staff it employs. Again, the extent of the decision-making may be limited by the percentage share the equity partner has in the firm.

Equity partners are personally responsible for any litigation. That means that if they lose a lawsuit, their personal and business assets are exposed.

Key differences between Salaried and Equity Partners

The key differences in salaried partners vs equity partners are summarised in the table below. 

Factor	Salaried Partner	Equity Partner
Legal Status	Employed by the partnership.	Self-employed individual with an ownership interest in the partnership.
Income	Fixed salary plus potential bonuses, subject to PAYE. Salaried partners are paid a guaranteed amount and do not typically participate in profit sharing unless bonuses are involved.	Paid from the firm’s profits, with the amount paid depending on the firm’s profits. Equity partners participate in profit sharing and receive a profit share based on the firm’s performance. Pay tax on a self-assessment basis. Also responsible for the firm’s losses.
Voting Rights	Generally, no or minimal voting rights; limited ability to participate in decision-making processes.	Entitled to participate in decision-making processes and formal votes for the business (subject to any limitations in a Partnership Agreement).
Capital Contribution	Not required.	Equity partners are required to make capital contributions and contribute capital to obtain their ownership stake, as well as participate in profit sharing.
Employment Rights	Full Statutory Rights and access to employee benefits and benefit packages.	None or limited. Benefits and benefit packages differ and are typically not the same for employees. Need to rely on the Partnership Act or the Partnership Agreement
Financial Risk	Low (subject to being indemnified by the equity partners).	High. Personal and business assets are exposed due to ownership interest.
Tax Status	Subject to PAYE.	Self-employed individuals for tax purposes are responsible for their income tax and subject to self-assessment.

Transitiong from a Salaried to Equity Partner

There is no one-size-fits-all approach when transitioning from a salaried to an equity partner. Sometimes, it depends significantly on the size of the law firm. However, the normal progression would be from being engaged as an Assistant Solicitor, to Associate, then Senior Associate, followed by Salaried Partner, and finally, Equity Partner. These steps are not fixed, and different firms will invite solicitors to become equity partners at various stages in their careers.

Some requirements equity partners look for in salaried partners

 The equity partners in the law firm may establish specific criteria for achieving equity partnership status by salaried partners. These might include:

•       Business development contribution: The salaried partner may have been assigned a target in terms of new clients, new cases, or revenue targets (or a combination of all three). Equity partners expect significant contributions to generating business opportunities and driving new business for the firm. Upon achieving the target, the salaried partner may expect an invitation to become an equity partner.
•       Consistent billing performance: If a salaried partner consistently achieves high billing performance, an invitation may be extended to become an equity partner. Profit sharing and profit share are often linked to such performance, with higher earnings and greater participation in profits for those who meet or exceed targets.
•       Leadership and management capability: When a salaried partner demonstrates leadership traits and management capabilities in dealing with clients or leading a team, the equity partners may decide to invite the salaried partner to become an equity partner.

There are, of course, other factors the equity partners will take into account, including the ability to participate in decision-making processes, which is a key aspect of equity partnership.

The equity partners are likely to review the position periodically and conduct their evaluation.

Equity partners will generally make an offer to the salaried partner, following which a negotiation will ensue. The negotiation will involve the required capital contribution by the salaried partner and the equity share they should receive. It will also address the voting rights of the salaried partner and, potentially, succession planning. It can also include strategic direction, business development and financial targets.

In some rarer cases, the salaried partner may be offered a limited share of profits and voting rights without becoming a full equity partner. A fixed share partner may not be required to make a capital contribution or be responsible for any losses.

Which model is right for you?

Some view being an equity partner as the pinnacle of their legal career. However, others consider the equity partner route too risky. Making decisions about career progression requires careful evaluation of the benefits and risks associated with each partnership model. Much depends on the capability, drive, financial readiness, risk appetite and personal priorities of the aspiring equity partner. Some say aspiring equity partners must be ambitious. Firm culture and the relationship between the partner and the firm can also significantly influence this decision.

Some lawyers remain salaried partners for their entire careers. They prefer the predictability that a regular salary brings and enjoy all the protections and benefits afforded by employment law. They may have limited influence in the strategic direction of the business, and there is likely to be a ceiling on their earning capacity.

Equity partners rely on a share of the business’s profits as their income. That means there is, at least theoretically, no ceiling on their income. However, becoming an equity partner entails the risk of exposing both business and personal assets to creditors.

Individual solicitors need to weigh the pros and cons when considering the argument between the salaried partner vs the equity partner models, and then make their decision.

Which option would you choose?

If you are offered a salaried or equity partnership, it is up to you to choose. Do you wish to take on more risk with the potential for higher rewards, or would you prefer a significant, fixed salary with more legal protections?

Choosing one over the other is a personal choice that must not be made lightly, and, for that reason, it is essential you fully understand the difference between a salaried partner and an equity partner.

FAQs about salaried and equity partners in UK law firms

Can salaried partners become equity partners?

Yes. While not guaranteed, becoming a salaried partner is often seen as a stepping stone to equity partnership. Law firms may establish criteria, such as business development, billing performance, and leadership capability, to determine eligibility. If a salaried partner meets these expectations, they may be invited to join the equity partnership following negotiations on capital contributions, voting rights, and profit share.

Do equity partners get a salary?

No. Equity partners do not receive a salary. Instead, they are paid through profit sharing, taking drawings against the firm’s profits. Their income is variable and tied to the firm’s financial performance. They are also self-employed and taxed through self-assessment, unlike salaried partners who are taxed under the PAYE system.

Are salaried partners owners of the firm?

No. Salaried partners are employees, not owners. They do not contribute capital, have no profit-sharing rights (unless through a bonus), and generally lack voting power or an ownership stake. Although they hold the title of “partner,” this status is honorary or functional rather than a form of legal ownership.

What’s the most significant difference between the two?

Ownership and risk. Equity partners own a part of the firm, share in its profits and losses, contribute capital, and assume financial and legal risks. Salaried partners, by contrast, are employees who earn a fixed income with employment rights but no ownership, no risk, and limited decision-making power.