Ownership transition / financing


I'm one of several partners in a mid-sized firm and am curious to hear how other architects are financially making their ownership happen. I am in a firm that has 1000 shares of stock and that gets an external valuation (from a very reputable source) every year, expecting buyers to pay out of pocket for their shares with their salary and any bonuses they may receive. The problem with this approach is that even purchasing a one percent share of the company could be half of one's take-home pay for the year. There is no interest whatsoever in the senior partners of the firm for the firm to take on debt to help finance stock purchases. I'm trying to understand how most firms out there handle this process. Are buyers financing their shares for some period of time through the company and not receiving full dividends until the stock is paid for? Do buyers essentially use their bonuses to buy stock so the process is essentially internally funded in a sort of closed loop? What about a process where owners buy stock at book value (usually less than a fair market value) and a deferred compensation plan is put into place to help sellers recover their investment on the way out? My firm seems to be insistent that there is no possible way to accomplish an ownership transition short of incoming owners paying full market value for their shares regardless of whether dividends or bonuses happen, and seems unwilling to consider any approach that puts any financing responsibility on the firm. It seems like an approach that is going to leave the firm no choice but to merge or sell externally. Curious to hear how firm owners have financed their buy and how the financial side of your company's ownership transition works. This seems to be extremely difficult information to find. Thanks for your thoughts!

May 28, 20 12:27 am

are the current owners the founding partners?you're right to be very careful buying "market rate" prices in a firm where in fact there is no market - no one except a few insiders has the opportunity to buy shares. unless there is obvious potential to grow (or sell) the business as you make partner i'd be very concerned about overpaying.

i don't have an answer to your question. i'm curious too. in the bigger offices i've worked in buy-in was always paid out as part of bonuses and salary. some principals chose not to buy in and remained on as non-partner principals.

May 28, 20 12:56 am  · 

The well-run firms I've see facilitate buy-in ways that don't involve the new partners making big upfront outlays of their own cash.  In these firms, the buy-in happens over time and is paid for out of the new partner's earnings and/or share of the profits.   It makes a lot on sense because what the heck young architect has tens of thousands of dollars in cash laying around to buy a partnership?   I have seen a few architects do the money upfront that the OP's firm is proposing and they were all real dirtbags.   They just wanted a big wad of cash to pay for retirement and didn't care what hardships that created for their new partners.   In most cases, nobody would ever take the partnership offers.

May 28, 20 9:52 am  · 

A lot of firms use a blend of both approaches - i.e. essentially bonusing some % of ownership to the chosen new partners, over an agreed-upon timeline, but also requiring a cash buy-in, so that all partners have their own skin in the game.

May 28, 20 9:58 am  · 

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