Equity Stake Isn’t a Prerequisite for ‘Partner’ Label

May a law firm refer to its lawyers, as partners, when those lawyers do not have voting authority on corporate governance matters or equity shares in the firm? The North Carolina State Bar recently answered this question in the affirmative.

The North Carolina State Bar Association issued Formal Ethics Opinion 9 advising that professional corporations are allowed to designate lawyers in their firm as “partner,” “income partner,” and “non-equity partner,” even if those lawyers do not own any interest in the firm and have no authority to vote on corporate governance matters. However, a lawyer who is designated as a partner must have been promoted based on legitimate criteria. Additionally, the Ethics Committee noted that any firm lawyer who has been promoted to “partner” will be held to all professional responsibilities that accompany that role, such as the supervisory responsibilities required by Rule of Professional Conduct 5.1.

In analyzing the meaning of the designation partner, the opinion looks to Black’s Law Dictionary, which defines a “partner” as “one of two or more persons who jointly own and carry on a business for profit.” However, the opinion notes that the legal profession often uses the concept of “partner” more expansively, such as defining shareholders in a professional corporation as “partners”. The North Carolina State Bar concurred on the broader definition of “partners” by concluding that lawyers tend to qualify as “partners” once they reach a certain level of experience, status, or authority within the firm.

The opinion cautions that referring to a lawyer as a “partner,” “income partner,” or “non-equity partner” cannot be utilized for deceptive purposes. The opinion cites North Carolina Rule of Professional Conduct 7.1(a)(1), stating that a communication is false or misleading if it “contains a material misrepresentation of fact or law, or omits a fact necessary to make the statement considered as a whole not materially misleading.”

To avoid violations of 7.1(a)(1), the opinion advises that a law firm can designate a lawyer as a partner without meeting the technical definition of that term, only if the firm has promoted the lawyer by “legitimate criteria” and in accordance with some type of formal action, management vote, or according to the firm’s governing documents. The Committee did not set a standard for legitimate criteria because it acknowledged that law firms have distinct standards for promotion. However, the opinion does provide guidance on what constitutes valid criteria, such as experience, integrity, industry, intelligence, communication, legal knowledge, motivation, judgment, efficiency, and involvement.

To read the full North Carolina opinion, click here.

Leave a Reply

Your email address will not be published. Required fields are marked *