Solicitor partner buyout finance: paying out a retiring or departing partner
Fund a retiring or departing partner’s exit from your law firm without draining working capital, with the payout, structures and lender checks explained.
From around £10,000 to £500,000+Larger facilities available in suitable cases
Security
Secured or unsecuredOptions compared for your case
Suitable businesses
Sole traders to limited companiesPartnerships and LLPs too
Lender panel
300+ lendersWhole-of-market search
In short
A solicitor partner buyout is usually funded by a term loan to the firm that repays the outgoing partner’s capital and undrawn profits, sometimes combined with continuing partners borrowing personally for new capital and instalments agreed with the leaver. Lenders focus on profits after the partner leaves, how much of their personal fee income and client following stays, and whether the partnership or members’ agreement sets a clear price and payment timetable.
When an equity partner or LLP member retires, moves to another firm or leaves after a disagreement, the continuing partners have to pay out their share, usually on a timetable set years earlier in the partnership or members’ agreement. Smart Funding Solutions is a broker, not a lender: we approach lenders on our panel of 300+ that fund professional partnerships, from around £10,000 to £500,000+, with larger facilities available in suitable cases. This page sits within our solicitor practice loans section.
Quick enquiry
Prefer a quick call back?
Not ready for the full application? Leave a few details and a broker will call you to talk it through. It is free, with no obligation.
In most law firm partnerships and LLPs the payout is not a negotiated sale price. It is a set of balances the agreement already defines, and the total can surprise continuing partners who have not looked at it for a while.
Fixed capital: the capital the partner contributed on joining, often funded by a personal loan they are still repaying. It is usually returned at par.
Current account: profits allocated but not yet drawn. Firms that pay partners modest monthly drawings and a year-end balancing payment can owe a leaver a substantial sum.
Tax reserve: money the firm has retained to settle the partner’s income tax. Once their final liability is known, the surplus is released to them.
Share of WIP and debtors: some agreements pay the leaver their share of unbilled and unpaid work as it converts to cash, rather than on the leaving date.
Goodwill: many traditional partnerships pay nothing for goodwill, on the basis that each partner received the same treatment on entry. In a limited company the shares may carry real value, which changes the funding size considerably.
Property: if the partner co-owns the office outside the firm, their share of that building is a separate negotiation; our page on law firm office purchase covers ownership structures.
When firms need outside funding
A well-run agreement spreads repayments of capital over one to three years so the firm can pay them from profit. Borrowing becomes necessary when that plan meets reality:
two partners retire in the same year, or a departure follows soon after a large PII renewal or VAT quarter;
a departing partner takes a team and a client following, cutting fee income just as the capital falls due;
the agreement is silent or old, and the leaver negotiates an immediate settlement in exchange for restrictive covenants or a clean break;
a founder of a limited company practice wants to sell their shares and the company does not have the distributable reserves to buy them back in one go;
the continuing partners prefer to pay the leaver at once to stop them competing for clients while instalments are outstanding.
Illustration: a three-partner LLP
Illustration only, with hypothetical round numbers. A three-member LLP with a residential property and family law practice has one member retiring. Under the members’ agreement she is owed £120,000 of fixed capital, repayable in three annual instalments, plus a £60,000 current account balance. The continuing members want to settle in full on her retirement date so she can end her involvement cleanly. The firm seeks a £150,000 term loan and pays the remaining £30,000 from cash. The lender reviews her share of fees over three years, the handover of her clients to a senior associate who is joining the membership, and a forecast showing the two continuing members’ drawings after loan repayments. The associate’s own £40,000 capital contribution is funded separately through a personal partner capital loan and reduces the firm’s net borrowing need.
Trade-offs and tax points
Borrowing to pay a leaver in full gives certainty, but it moves the cost onto the continuing partners, who carry personal guarantees for money that benefits someone who has gone. Read our note on personal guarantees before agreeing to joint and several liability. If the agreement already allows instalments, keeping them may be cheaper than a loan, provided the leaver has no reason to compete.
The leaver’s tax position can affect how they want to be paid. A partner selling a business interest or shares may be able to claim Business Asset Disposal Relief on a gain, subject to HMRC’s conditions, while return of capital at par in a partnership usually produces no gain at all. Continuing partners should also remember that their own tax bills do not fall because the firm is repaying a loan: loan repayments come out of taxed profit. If a partner’s personal liability becomes the pinch point, income tax loans are one option, and our sibling page on VAT and tax funding for law firms covers the firm’s own liabilities.
Finally, a buyout is a good moment to revisit the agreement itself. Clauses that let capital be repaid over a longer period, or require notice before retirement, make the next exit cheaper to fund.
Underwriting
What lenders need to see after a partner leaves
Lenders underwrite the firm that will exist after the departure, not the one in last year’s accounts. The specific points they test are:
01
The leaver’s personal billing
how much of the firm’s fees they recorded, and whether their clients have been introduced to other partners. A retiring partner who has spent two years handing over is a very different risk from one who leaves suddenly.
02
Restrictive covenants
whether the agreement stops the leaver soliciting clients and staff, and for how long.
03
Remaining partners’ drawings
the lender will check that the continuing partners can service the loan and still take a living, and may ask for a forecast showing both.
04
Supervision and compliance roles
if the leaver was the COLP, COFA or the only partner supervising a department, the firm needs a replacement; the SRA’s guidance on reporting and notification obligations explains what must be reported.
05
Existing borrowing
capital loans taken by partners when they joined, overdrafts and PII premium funding all count towards what the firm can afford.
06
Headcount at the top
a firm dropping from three equity partners to two is more concentrated, and lenders weigh key-person risk accordingly.
Checklist
Documents for a partner buyout application
The partnership, members’ or shareholders’ agreement, including the retirement, capital and restrictive covenant clauses
A schedule of the leaver’s entitlement: capital, current account, tax reserve and any WIP or debtor share
The retirement or settlement agreement, if signed, or heads of agreement
Two to three years’ accounts and current management figures
Fee income by partner and department, and the handover plan for the leaver’s clients
A forecast of profits and drawings for the continuing partners after the loan is repaid monthly
Details of existing partner capital loans, overdrafts and premium finance
Personal financial statements for each continuing partner who will guarantee
Side by side
Compare your options
How the main business finance structures work. Lenders set their own terms, so treat this as a guide to the questions to ask.
General information only. Every lender has its own criteria, and all finance is subject to status.
Ways to structure the buyout
Route
How it works
Suits
Trade-off
Firm-level term loan
The firm borrows and repays the leaver’s capital and current account
Partnerships and LLPs with steady profits
Reduces profit available for drawings for the loan term
Replacement capital from continuing or new partners
Each partner borrows personally and contributes capital to the firm
Firms promoting associates to equity at the same time
Personal borrowing, repaid from each partner’s drawings
Instalments to the leaver
The agreement or a settlement spreads payment over time
Amicable retirements with no competing risk
The leaver remains a creditor; some want security or interest
Company share buyback or new holding company
The company buys the shares, or a new holding company borrows to acquire them
Limited company practices
Needs distributable reserves and tax advice; lenders assess the group
Firm-level borrowing is usually arranged as an unsecured business loan with guarantees from the continuing partners, or as a secured loan where property is available. Where associates are buying in to replace the leaver’s capital, see our page on partner capital loans for solicitors. For limited company practices, the mechanics of buying out a shareholder are covered in our shareholder buyout finance guide.
How we help continuing partners
We work through the leaver’s entitlement with you and separate what must be paid now from what can be deferred.
We decide with you whether the firm, the continuing partners or a mix should borrow, and prepare the post-exit forecast lenders expect.
We approach lenders on our panel that understand law firm profit sharing and present their terms side by side, including guarantee requirements.
The chosen lender carries out its checks and makes the decision; we keep the process moving alongside the retirement timetable.
It is free to enquire; any broker fee is disclosed separately before you proceed.
What our clients say
I’d like to say a big thank you to Simon and the team for successfully assisting with the sourcing and placing of our most recent funding. Simon was able to secure a lend when others appeared to have run out of appetite to place business or source viable options. I would highly recommend Simon should you need to raise capital or finance for your business needs.
Solicitors’ practiceManagement teamGoogle review
FAQs
Questions clients ask
Can a retiring partner insist on being paid in full on the day they leave?
Only if the partnership or members’ agreement says so. Most agreements allow capital to be returned over a period, and where there is no written agreement the Partnership Act 1890 default rules apply, which rarely suit a modern firm. Settling early is usually a negotiated concession, often in return for a clean break.
Does the retiring partner have to stay liable on the firm’s loans?
If they gave a personal guarantee for existing firm borrowing, it does not end automatically on retirement. The lender must agree to release it, often in exchange for guarantees from the continuing partners. It is worth raising this at the start, because a leaver will usually want the release as part of the settlement.
What happens if a partner dies or leaves through ill health?
The same entitlements generally apply, paid to the partner or their estate. Many firms hold partner life or critical illness cover specifically to fund this, which can reduce or remove the need to borrow. Where cover is insufficient, lenders will look at the firm’s profits without that partner, as they would for a planned retirement.
Is buying out a partner different from buying another firm?
Yes. A buyout keeps the same firm, clients and insurer, so the risk is continuity rather than integration. Buying a separate practice brings successor practice, SRA and client retention questions that our page on law firm acquisition finance covers.
Can we get solicitor partner buyout finance if the firm already has borrowing?
Yes, existing borrowing does not rule out partner buyout finance, but lenders will look at total debt against profits once the leaver's share is removed. A new lender may want to refinance the existing facility or agree how security ranks between them. Where debt is already high, spreading the payout through instalments agreed with the outgoing partner can reduce how much needs to be borrowed. Our page on refinancing business loans explains how existing facilities are handled.
Solicitors’ PII funding spreads the professional indemnity premium, which every SRA-authorised firm must pay to keep…
Speak to a broker
Discuss your requirement
Tell us what the funding is for. We search our panel of 300+ lenders, structure the case and approach the ones suited to it. No obligation, and free to enquire.
