Salaried Members: Condition B: Delegated powers
Some LLPs delegate a role such as management to a part of the membership, such as a management committee.
The starting point is the LLP Agreement which should indicate what and how powers are being delegated.
If the members of the management committee effectively run the LLP, then Condition B will not be satisfied in respect of those members. Condition B will be satisfied for the remaining members, who are potentially Salaried Members.
It is important to focus on the powers and responsibilities that have been delegated and not to focus on the name given to the body.
For example if the role of the management committee or of an individual member with management responsibilities is largely administrative (see ESM 84020), then that would satisfy Condition B.
In some firms the decision may be taken to delegate other aspects of work. For example, a firm may delegate to a particular group of members the power to decide the strategy of the firm. A realistic view of the facts could mean that this group has significant influence.
This is an example of an influential individual in the course of retiring.
Up until 1 June 2014, E was the managing partner of GH LLP, a large professional services firm. Upon reaching the age of 60, E decided that she wanted to retire. F was appointed as the new managing partner, but F and the other members were keen to retain E’s experience in order to mentor F and provide a smooth transition.
E agreed to carry on as a member for a further year, becoming the firm’s chairperson. She would continue to be an integral member of the management committee in this period, providing direction to F and the other members, albeit reducing her hours at work.
E would withdraw her capital from the firm over the course of the year in order to purchase a second home in the south of France. It was also agreed that her profit share would largely be fixed for this period, even though it had been entirely variable up until 1 June 2014.
Will E be a Salaried Member in her final year with the firm?
Although it seems that Conditions A and C of the test could be met in light of her move from a variable to a fixed profit share and the withdrawal of her capital, the circumstances are that she will clearly have significant influence over the affairs of the LLP for the whole of this period. Therefore, Condition B will not be met, meaning that Conditions A and C will not need to be considered; E will not be treated as a Salaried Member.
This example illustrates how controlling the strategy of the business as opposed to the managing of the business can give significant influence.
The TUV LLP is an investment manager. The four senior investment managers take no part in the day to day running of the firm, but set the investment strategy, deciding which markets the firm will invest in and reviewing the performance of the various funds, and taking action where they see the firm underperforming.
The four senior investment managers control and direct the firm’s activities. They have significant influence and fail Condition B.
TUV LLP appoints a “managing partner”, responsible for the day to day administration.
Although termed a managing partner, the question is what powers have been delegated?