He sees no lack of money for firms. Most of the loan agreements his bank makes to firms are backed by personal guarantees against the deep pockets within the shareholder group. Those are all important questions, says Evancho. He points to the scenario of a firm where a rash of defections breaks out just after three senior shareholders have borrowed against a credit line. With fewer attorneys to bill time, the remaining shareholders panic.
Some firms decide to fold and default.
Leaving money in the firm coffers, however, is not the only way that firms can provide the capitalization that is needed. He also suggests that firms limit their growth in order to continue at current capital levels, or admit new partners, eliminating salaries for associates and increasing capital through buy-in contributions. And buy out, he adds. Buy outs are fairly new in the business of law firms, but more and more attorneys are moving from one firm to another and it is important to know what part of the capitalization they take with them when they move. Retirement compensation packages are another big concern.