When to invite to equity and when to wait.

Inviting a senior lawyer to equity is the most consequential people decision a small firm makes. It's permanent (in practice, divorces are messy and rare), it changes the economics for everyone already at equity, and it sets a precedent the firm has to live with for the next decade.

Most small firms make the call on a mix of loyalty, timing, and the candidate's frustration with not being one. Each of those is a real factor. None of them on their own is a good reason. This piece is the decision framework — three tests, the financial honesty, the alternatives, and the trap.

The three tests, in order

1. Are they running a P&L the firm can see?

The non-negotiable test. An equity partner is, in practice, an owner of part of the business. Owners need to be running something the existing owners can attribute revenue and cost to — a practice area, a sub-team, a sector — and have done so consistently for at least two years.

“They're a great lawyer” isn't this test. “They billed £450k last year” isn't this test. The test is: have they been responsible for the margin and the team and the client relationships of an identifiable book, with visible accountability for the outcomes? If yes, equity is plausible. If no, what's being proposed is a salary increase, not a partnership.

Run the candidate's book through the Matter Profitability Calculator— at the practice-area level. If their book is consistently above firm-wide margin, they're a candidate. If it's at or below firm-wide margin — even with strong personal billings — the partnership math doesn't work.

2. Are they actually a partner now, in everything but title?

Equity should be a recognition of behaviour, not an attempt to produce it. The behavioural tests:

• Do they bring in work, not just deliver it?
• Do they own client relationships end-to-end, including the difficult conversations?
• Do they supervise others materially, and does the team they supervise actually develop?
• Do they participate in firm decisions when invited, with firm-wide rather than self-interested framing?
• Have they been spoken to as a partner-in-waiting for at least 12 months, with consistent positive signals?

Three of five strong is usually fine — five of five is rare and probably overdue. Two of five strong is a signal the conversation is premature.

3. Does the firm need another equity partner right now?

The least asked test, and often the deciding one. Three states:

• Yes — capacity reason.The firm has grown to the point where existing partners can't supervise, BD, and run their own practices without adding another at the same level. New partner brings structural capacity at the senior tier.
• Yes — succession reason. One or more existing partners are within 5–10 years of stepping back, and the firm needs a new generation in place before that happens. New partner is the bench for the transition.
• No — but we don't want to lose them. The honest answer for many invitations. The candidate is excellent, has another offer, and the firm is worried about losing them. This is sometimes the right reason for equity; more often it's the right reason for a different intervention (see alternatives below).

The financial honesty

Equity changes the economics for existing partners. A new equity partner reduces the existing partners' per-share profit unless the firm grows to compensate. The honest model:

Year-one effect on existing partners

• New partner's salary stops being a cost and becomes a draw on profit. Net positive: their personal margin contribution (their billings minus their fully-loaded cost minus their share of overhead).
• The remaining profit gets divided across one more equity holder. Net negative on existing partners' per-share profit unless overall profit grows proportionately.
• Working capital implication: if the equity arrangement requires capital contribution from the new partner, there's a one-off positive; if not, the firm carries the working capital exposure.

The two-year view

The harder modelling. Most invitations look slightly negative in year one and positive by year three — if the new partner grows the book they're responsible for. That growth is the implicit assumption in most invitations; making it explicit matters. If the new partner's book grows by 10% a year for two years, the math works; if it's flat, existing partners are worse off in perpetuity.

The clean thing to do: write the assumption down, agree it with the new partner, and re-test it at year two.

The alternatives short of equity

If the candidate is strong but the firm doesn't need another equity partner yet, three intermediate steps:

Salaried partner

Title and external positioning of partner; remuneration as a senior salary plus a bonus tied to a defined book of work. Most useful for: a candidate who is excellent technically but hasn't fully demonstrated the BD or management dimensions, or where the firm wants 2–3 more years of evidence before equity. Risks: drift to where salaried partners feel second-class and leave, or where the bonus structure is too soft to be a real test of partnership behaviour.

Profit-share without equity

A defined percentage of firm profit (or practice-area profit) on top of base salary, without ownership of the firm itself. Useful where the candidate wants upside exposure and the firm wants to test partnership economics without making it permanent.

Track to equity with explicit milestones

A written 24-month plan: here are the four or five things you need to demonstrate to make equity, here are the review checkpoints, here's the equity offer if you meet them. This is more honest than vague “you're on the path” conversations, and forces both sides to be specific. The risk: the firm has to actually honour the offer if the candidate hits the milestones, even if the firm's situation has changed by then.

The trap most firms fall into

Inviting to equity to retain. The candidate is threatening (explicitly or implicitly) to leave; equity is offered as a counter; the firm gets a partner it didn't plan for, the candidate gets a title they wanted but haven't fully demonstrated, and the relationship starts on an artificial footing.

The honest version of the conversation is harder: “If you stay another 18 months and demonstrate X, here's a clear path. If you can't wait 18 months, we wish you well, and we'll find someone else.” Most candidates respect this; some leave; the ones who stay are the ones who are genuinely committed, which is the whole point.

The conversation itself

When the decision is yes, the conversation should cover:

• Profit share and how it's calculated.
• Capital contribution (if any), terms, timing.
• Drawing structure — what they can take, when, on what basis.
• Voting rights and decision domains — equal, weighted, or carved-out.
• The terms of exit — buy-out formula, notice period, restrictive covenants.

The exit terms matter most precisely because nobody wants to discuss them at the start. They're also the ones that, if not pinned down, generate the most expensive disputes years later.

What good looks like

An equity invitation that's the obvious culmination of a clear two-year run, where the candidate's P&L is visible, their behaviour matches their pending title, and the firm has a structural reason to add at the senior level. The financial impact is modelled honestly; the alternatives short of equity have been considered and rejected for specific reasons; the conversation about exit terms happens at the start, not in 2032.

Done that way, the invitation strengthens the firm. Done the other way — emotional, retention-driven, financially unmodelled — it's the most expensive HR decision the firm will ever regret.