Mishcon set to turn from partnership to full-equity LLP structure

Mishcon de Reya is to vote next month on converting to an LLP and bringing all of its salaried partners into the equity.

Kevin Gold
Kevin Gold

The firm will transform its current partnership structure with 65 fixed-share partners and 37 equity partners to a full-equity LLP next year, dependent on a yes vote. Mishcon also lodged a formal application to become an ABS last month.

Managing partner Kevin Gold said the move to restructure the partnership was prompted by taking on a more expensive lease with its move to Aldwych next year (11 June 2014).

The 120,000 sq ft Africa House in Kingsway will cost around £3m more per year than the firm’s current offices. Until now Mishcon has been spread across four offices in Holborn at an annual cost of £4m.

Gold said: “The decision was taken on taking such a big lease commitment. Notwithstanding our commitment to a partnership culture, the risk/reward of becoming an LLP was driving us.”

The firm will now make use of the LLP it registered in 2008, which has remained dormant ever since. The structure was registered in order to preserve the Mishcon name and ultimately proceed to conversion.

After becoming an LLP, all Mishcon partners will contribute capital and take a stake in the firm as junior or senior equity partners. The move to scrap fixed-share partners, currently called junior partners, will also bring the firm in line with current HMRC regulations on partnership taxation. New rules which came into force this year require firms to pay national insurance contributions for any salaries partner with less than 25 per cent of their salary invested as capital (26 February 2014).

Junior equity partners are likely to be paid according to the amount of capital introduced to the firm and seniority, with pay also dependent on performance.

The new structure contrasts to the firm’s current composition of legal directors, junior partners and junior and senior equity partners.

Managing partner Kevin Gold refused to divulge the level of contribution set for junior equity partners but said their stakes in the firm would be “significant”.

Bringing all partners into the equity is likely to have a major impact on Mishcon’s hefty average profit per equity partner (PEP) figure, which soared to £975,000 during 2013/14, a 16 per cent increase on £840,000 at the 2012/13 year-end. However Gold said several junior partners were already on higher salaries than some equity partners due to a focus on merit-based pay.

Last year the total amount paid to all classes of partner at Mishcon stood at £42.1m, giving average earnings per partner of £413,000. Net profit divided among its equity partners was £32.2m.

The firm could also become an ABS in the near future after applying for a licence last month. If granted the licence, several non-lawyers will take stakes in the partnership including three or four of its directorate, which includes its HR director and chief financial officer.

Gold said the ABS conversion was “purely about aligning people who are not lawyers with the legal partners and opening up and democratising the firm” but said external investment was not on the horizon.