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A Partner by Any Other Name…. Peter Scott Peter Scott Consulting. The management of change. The changing needs of clients Recruitment and retention of good people The war on talent. Partnership.

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a partner by any other name

A Partner by Any Other Name….

Peter Scott

Peter Scott Consulting

the management of change
The management of change
  • The changing needs of clients
  • Recruitment and retention of good people
  • The war on talent

PETER SCOTT CONSULTING

partnership
Partnership

“The relationship which subsists between persons carrying on a business in common with a view to profit”

Section 1 - Partnership Act 1890

PETER SCOTT CONSULTING

when does a partnership exist
When does a partnership exist?
  • The sharing of gross returns does not of itself create a partnership

Section 2(2) – PA 1890

  • The receipt of a share of net profits is evidence of a partnership

Section 2(3) – PA 1890

PETER SCOTT CONSULTING

equity partner profits
Equity Partner Profits
  • PEP currently dominates thinking
  • But equity partners are also OWNERS of the firm
  • Trends are towards:

- tighter equity

- building capital values

PETER SCOTT CONSULTING

profit and ownership in return for
Profit (and ownership) in return for …….?
  • What should an equity partner bring to the firm?
  • Each firm’s ‘values’ will be different
  • Trends in criteria for entry to equity partnership?

PETER SCOTT CONSULTING

one firm s criteria for equity
One firm’s criteria for equity

Being an excellent lawyer is not enough – that is a given

  • Leadership and vision and a determination to develop the firm’s business
  • Wisdom and maturity of thought
  • Highly respected internally and externally, based upon strong reputation and judgment
  • Committed
  • Team player
  • Commercially astute

PETER SCOTT CONSULTING

how to measure contribution
How to measure contribution?
  • Fairly match reward to contribution
  • Measure what matters – so align reward mechanisms to achieving strategic objectives
  • Contribution should be measured across a broad range of partner roles

PETER SCOTT CONSULTING

is there an ideal number of equity partners
Is there an ideal number of equity partners?

Factors impacting on numbers may include:

  • Need to enhance PEP
  • Need for “human capital”
  • Need for financial capital
  • Succession planning
  • mergers

PETER SCOTT CONSULTING

why do firms have non equity partners
Why do firms have non-equity partners?
  • Desire to keep equity tight
  • External perception of size
  • A learning step

PETER SCOTT CONSULTING

fixed share partners
Fixed share partners
  • May involve the fiction of small investment / profit percentage,
  • In reality are like salaried partners but lose employment rights
  • May need a guaranteed floor level (equity profits abate first)
  • Often excluded from financial information

PETER SCOTT CONSULTING

salaried partners
Salaried Partners
  • Not ‘real’ partners – unsatisfactory status
  • Contractually and tax status that of employees
  • Cost to firm of employers’ NIC

PETER SCOTT CONSULTING

members of llps
Members of LLPs
  • No difference for equity members (taxed like partners)
  • But no requirement that to be a member a person must be entitled to a share of the LLP’s profits
  • So members can be fixed share and salaried

PETER SCOTT CONSULTING

fixed share and salaried members
Fixed share and salaried members
  • A member is self employed unless, if he was a partner in a partnership he would be regarded as employed by the partnership – section 4(4) LLP Act 2000
  • So an LLP can have salaried members
  • But – are they Schedule D or Schedule E?

- Revenue’s approach?

- Divorce of employment law and tax law?

PETER SCOTT CONSULTING

members rights implications for llps
Members rights - implications for LLPs?
  • More regulated
  • Default rules
  • Statutory rights

PETER SCOTT CONSULTING

llp default rules applicable to all members
LLP Default Rules applicable to ALL members
  • Rule 7

“The books and records of the LLP are to be made

available for inspection ……………..and every member of the

LLP may when he thinks fit have access to and inspect and

copy any of them”

  • Rule 8

“Each member shall render true accounts and full

information of all things affecting the LLP to any member

or his legal representatives”

But these default rules can be varied

PETER SCOTT CONSULTING

but bear in mind the statutory rights of every member
But – bear in mind the statutory rights of every member

Principally rights to information relating to the LLP’s

accounts, its accounting records and its financial position,

for example:

The right at all times to inspect the accounting records of

the LLP - Section 221(1) CA 1985

The right to receive a copy of the LLP’s accounts together

with a copy of the auditors report – section 238(1) CA

1985

PETER SCOTT CONSULTING

current trends
Current trends?
  • The performance bar is being raised for each type of partner / member
  • Is there a need for non-equity partners?

- as a learning stage / career paths

- as a means of retaining good people

- need to keep the equity tight to enhance PEP and to

build capital values

PETER SCOTT CONSULTING