A Great Example of Sources of Finance for a Partnership

This is a superb news article that combines several relevant topics for AS Business Studies. No going cap-in-hand for a bank loan here. Partners at a leading law firm are being asked to contribute further capital directly into the partnership…

Clifford Chance, the world’s largest law firm, is seeking an average of £100,000 from each of its 400 “equity partners”. The aim is to raise more than £40 million for the partnership.

The article explains how partners in the firm will be required to contribute based on their seniority. This makes sense, since the more senior partners will already get a larger share of the profits. The article quotes a range of £0.5m - £1.3m per year as being the annual profit share for a Clifford Chance partner - so most will have little, if any difficulty in raising the cash.

This is a good example of how a partnership works. When finance is required, the equity partners (i.e. those who share the profits) all have to contribute on in a way that the partners collectively consider to be fair.

There is a useful piece towards the end of the article that explains why even a global law firm like Clifford Chance can run into cash flow problems. A legal analyst comments that:

“Typically slow at chasing debtors, they [law firms] take an average of about four months to collect unpaid bills, leading to temporary shortages of cash for paying fixed costs, such as salaries and rent. In the past, such shortages have often been funded by an overdraft; however, as banks tighten credit lines because of their own financial difficulties, law firms may have no choice but to ask partners to dip into their own pockets.”