Questions about being offered Partnership?

[NewDad5]

Was hoping someone could shed some light on a topic I have little knowledge of. My Wife has been offered partnership at her firm (public relations) Long time employee 10 + years, great track record, has moved throught the ranks. etc. She knows very little about it, but I do have some quick tid bits. 1/4 share is worth $7000, I beleive she is being offered a full share. return has averaged over the last 5 years approx 21%. True RFD'r here...whats the down side? She has heard of a few other emplyees being offerd as well. Do they need cash? is something a company would do to raise capital? The company is doing well and business is actually growing significantly. Any thoughts?

[AllWheelDrift]

Was hoping someone could shed some light on a topic I have little knowledge of. My Wife has been offered partnership at her firm (public relations) Long time employee 10 + years, great track record, has moved throught the ranks. etc. She knows very little about it, but I do have some quick tid bits. 1/4 share is worth $7000, I beleive she is being offered a full share. return has averaged over the last 5 years approx 21%. True RFD'r here...whats the down side? She has heard of a few other emplyees being offerd as well. Do they need cash? is something a company would do to raise capital? The company is doing well and business is actually growing significantly. Any thoughts?
I don't know much about partnerships, but can they create additional shares to raise cash?

Maybe an existing partner is retiring and they need to buy him/her out? I know that's the problem the firm my father was a partner of ran into. All the partners were reaching retirement age around the same time and they weren't able to buy eachother out, so in the end they sold the company.

I suppose it could simply be exising partners wanting to reduce their exposure, which might not be a good sign.

[VivienM]

I assume this "company" is really like law firms, accounting firms, etc, no?

i.e. when you hit a certain point in your career (usually having something to do with your ability to bring in business to the firm), they no longer want you to be an employee, and you're expected to be a partner (more or less equal to the other partners) and get paid out of the profits.

[CheapScotsman]

There are pros and cons of being a partner ... but the gist of it is, you are now owning part of the business along with all the other partners.

Good Things ... you could have a vote on business issues (but maybe not; juniors/limited may not ... depends on the agreement). You should get a share in profits, etc.

Bad Things ... you may have to pay money to buy in, you could be held personally liable for financial (funds due to other companies; unpaid salaries, lawsuits, etc) as well as poor decisions made by the business/employees (usually resulting in a lawsuit to the company). Most of these could be mitigated by partner insurance, however .... you should be aware.

There are too many variable to sort out on an internet forum (general partner or limited partner, junior or senior, voting rights, % of earnings, other issues, etc)

Before accepting, get a copy of the entire partnership agreement, read it, understand it ... then have it reviewed and explained by a lawyer familiar with these type of business agreements.

[BornRuff]

Your shelling out a lot of money here, deffinatly shell out the bit extra to go over it with a lawyer.

The basic downsides are similar of any other investment. If the company does poorly, she could loose money.

Remember, don't trust past earnings, the future could be nothing like the past for the company. Make sure you get a good picture of the financial standing of the company. If the company is growing fast, this might negativly affect profits in the short run as money is put into growth of the company. Are they growing too fast? This could affect profits long term.

Just make sure you do all of your due dilligence before getting on board with this.