It used to be the case that lawyers practiced either as solo practitioners or in partnership. Over the years the organizational forms for lawyers have changed dramatically for tax, liability, and economic reasons. Lawyers now have the option to choose the type of organization that minimizes tax liability while maximizing tax benefits and that reduces at least to some extent liability arising from the practice of law. While these developments have taken place, lawyers have often continued to use the old terminology of partnership (although it is not uncommon to see references to shareholders in professional corporations and members of limited liability companies or partnership). For economic reasons many firms now create status classifications in their organizations, the most common of which are “equity partners” and “income partners.”
Traditionally, partners in a firm were coowners. See the Uniform Partnership Act (1914), section 6(1), which stated: “(1) A partnership is an association of two or more persons to carry on as co-owners a business for profit.” (emphasis added). Is it ethically permissible for a lawyer who is not an owner of an entity that provides legal services to hold himself out as a “partner”? The North Carolina Bar said yes in a recent ethics Opinion, 2015-9 (Holding out Non-Equity Firm Lawyers as “Partners”). The committee advised that a lawyer could hold himself out as partner even if the lawyer was not an owner in the firm:
[W]ithin the legal profession, the designation is often used without regard to the legal definition. For example, shareholders in a professional corporation for the practice of law are frequently referred to as “partners.” Like lawyers themselves, laymen generally equate the designation with the achievement by a lawyer of a certain level of experience, status, or authority within a law firm. (emphasis added).
The committee went on to advise that a description of a lawyer as a partner could not be a sham. Rule 7.1 requires that any communications about the lawyer’s services must not be false or misleading. To satisfy this requirement the lawyer must be promoted to the position by formal action or vote of the firm’s management or in accordance with its governing documents. In addition, “to prevent the public from being misled as to the lawyer’s achievements, the promotion must be based upon criteria that indicates that the lawyer is worthy of the promotion.” The committee went on to list various criteria that a firm might use, although the exact criteria were up to the firm.
The opinion does not discuss other ethical obligations of non-equity partners except to point out that they are required to comply with supervisory obligations of partners under Rule 5.1.
While the committee approved the use of the term “partner” for non-equity income partners (and indeed for other classifications of partner), the opinion is of course only applicable in North Carolina. A prudent firm and income partner in order to avoid a claim of misrepresentation will a complete designation. In addition, the opinion does not discuss the legal obligations of income partner; these issues are a matter of the substantive law governing the type of organization in which the lawyer practices as a “partner.”
For more information, Nathan M. Crystal
