Modern day businesses are frequently turning to the Limited Liability Partnership (LLP) structure over the more traditional partnership format. This has led to an increase in fixed share members, rather than salaried partners as the stepping stone towards full equity partnerships.
Within an LLP or partnership there can be a number of different types of members and which class of partner (or member) a business chooses to use can depend on factors such as size, whether it is an LLP or how they prefer new employees to enter the business at this level. With this marked rise in LLPs it is important to know the difference and benefits of both salaried and fixed share partnerships.
What is a salaried partner?
A salaried partner position is often seen as the first step towards becoming an equity partner, although nowadays this can be complicated by the option of becoming a fixed share member of a business instead.
Unlike an equity partner, a salaried partner takes home a salary each month, as suggested by the title. Therefore, they are not normally dependent on the profits and losses of the business to determine how much they draw from the LLP or partnership each month.
A key benefit to becoming a salaried partner is having your name appear as partner on the business notepaper. Whether you are a salaried or equity partner is unknown to the outside world.
The salaried partner is subject to these rules despite not being privy to this information. It is likely that they will not have seen the businessâ€™s accounts, nor will they know whether they have been submitted on time. In spite of this the partner is equally liable if the accounts are late or incorrect to that of an equity partner who is entitled to shares of the profits and normally has more control of the management of the business.
It is for this reason that it is vital for salaried partners to have security from equity partners for damages or losses and it is vital you obtain legal advice if you are offered such a position.
A fixed-share member
As an alternative to becoming a salaried partner, you may choose or be offered a fixed share membership instead. The position holds a fixed, guaranteed element sometimes with a small amount of bonus or equity, although the position generally does not hold a voting right as it is viewed in most businesses to be a â€˜getting to know you periodâ€™.
An increasing number of businesses take on partners under the fixed share status as they are using the Limited Liability Partnership entity within or wholly for their business structure. If the business is an LLP, a fixed share member enjoys self-employed tax treatment, the same as an equity partner.
A partnership or LLP will sometimes prefer to hire a partner at fixed share level instead of at equity, as it can allow them to ascertain an individualâ€™s suitability for the role.
To gain fixed share partnership the member will tend to be given a nominal percentage of the equity in an LLP, and guaranteed minimum drawings. They are expected to buy their nominal share for a minimal amount which they will receive on leaving the business. Amounts paid will vary depending on the size of the firm, as will expected salary.
If you feel like this applies to you and you would like legal advice regarding your career, then contact Ralli Partnership Law Solicitors and we will help to guide you to your next step.