Key considerations for equity partners when approaching retirement

Considering the future of the business

After investing years in building up your practice, growing its reputation and creating its success, no doubt you’ll want that success to continue after you’ve left. During your time as partner, there are several things you can do to help ensure this.

Create a pipeline of new generation leaders

One way to organically plan for succession is by training up current staff at the firm. Not all staff will have ambitions to become partner, but for those who do, this is a good way to ensure the future of the business. Get staff involved in decisions early and encourage their development in the firm. It’s also important to allow these members of staff to build relationships with your clients before your departure. This will lead to a smoother transition process upon your retirement.

Branch into new areas

Bringing in an expert in another field outside your firm’s expertise could help to build the business and expand its clientele. There are a number of benefits of this route as opposed to growing a new business stream organically. These experts will already have a good reputation in their area, bringing with them several clients, connections and contacts. They’ll also have an enthusiasm for their specialism, encouraging more growth in their area of expertise as well as developing other members of the firm. With the right support, resource and encouragement, this could result in a new, successful and profitable business stream for the firm. 

Repayment of capital and current accounts

It’s important to understand how much money will be due back to you from the business on your retirement. It‘s very likely that you will have paid capital into the business and the LLP agreement should determine how and when this will be repaid to you. You’ll also likely have undrawn profits and your internal finance team should have a record of how much is due back to you.

Overlap relief

If your firm’s year end does not tie in with the tax year (i.e. isn’t 31 March or 5 April) then your retirement may trigger the unlocking of overlap profits, which are the profits on which you paid tax twice in the early years of partnership. This can be relieved against your final profit share and may lead to a lower final tax payment. If you are unsure on whether you will be entitled to overlap relief, you should discuss this with your personal tax adviser.

Consultancy

It is not uncommon for a partner to become a consultant on their retirement. This can be beneficial for both parties as it ensures you continue to be remunerated and the businesses retains your expertise for an agreed period. A consultancy agreement will be drawn up and this will detail how you will be remunerated. You may opt to become a salaried partner (on PAYE) for a while rather than a self-employed consultant.

Retirement as a partner is not a simple process and takes years of planning if you want to ensure the future success of the business in addition to your own personal finances. It is important to have regular discussions with your fellow partners to ensure a smooth process and that the final outcome is best for all involved.