Salaried Members: Condition B: Overview
Condition B is intended to reflect the difference between a partner in a traditional partnership, who is part of the business, and someone who works for that business.
An individual member with significant influence over the business as a whole will fail Condition B and will not be a Salaried Member.
A UK LLP is a body corporate governed internally by the agreement between the members, in much the same way as a partnership is governed by the Partnership Agreement.
As a result the members have considerable flexibility in how they organise the affairs of the LLP.
The starting point for deciding whether a member has significant influence over the affairs of the LLP as a whole are the terms set out in the LLP agreement. This includes any personal terms agreed for that individual member. Guidance on what the LLP agreement consists of can be found in the Business Income Manual at BIM82112.
However in applying Condition B, it is important to look at what happens in practice. The question is whether on a realistic view of the facts that individual has significant influence. Guidance discussing examples of where what happens in practice differs from the agreement can be found at ESM62015.
Because of the wide variety of activity carried on by LLPs and the flexibility in how they are organised, it is not possible to specify the factors that will mean that an individual has significant influence. Guidance on the types of factor to take into account can be found at ESM62020.
Some Business sectors are regulated by statutory bodies. An example is the Financial Conduct Authority (FCA) which regulates the Financial Services Industry in the UK. The guidance at ESM62025 looks at the overlap between Condition B and the FCA’s significant influence function test.
The size of an LLP is a factor that affects how the LLP is run. Once an LLP reaches a certain size, it is probable that the running of the LLP will be delegated. Guidance on this can be found at ESM62030 onwards.
Condition B looks at significant influence over the LLP as a whole. Condition B is satisfied if a member only has significant influence over part of the business. Guidance on this point can be found at ESM62045.
Condition B looks at the influence that the individual has as a member. It does not take into account the influence that the individual may have in another capacity, for example as director of a corporate member. Guidance on this point can be found at ESM62050.
An LLP may be a member of a group. In this situation Condition B looks at the influence that the individual has as a member of that LLP. Guidance on the position where the LLP is the parent body is at ESM62055, whilst guidance on the position for LLPs that are subsidiaries can be found at ESM62060.
The test for Condition B should be applied when the when the individual becomes a member. It needs to be tested again when the arrangements change such that an individual either acquires or ceases to have significant influence the condition B status changes. Further guidance can be found at ESM62070.