Legal News

Different Classes of Members of LLPs – Part Three
Tue 23rd Aug 11 - 11:52

The next distinction to consider is between equity and non-equity.

Equity Members have capital invested in the business and receive a share of the profits.  These are like Equity Partners in traditional partnerships.  They have no guaranteed income and take drawings rather than salary.

Fixed Share Members have a small fixed share of the equity and guaranteed minimum drawings, assuming the business is profitable.  They often have a very small share of the profits, for example 0.5% but with a guaranteed minimum drawings equivalent to a salary, for example, £50,000.

My previous article explains the benefits of Fixed Share Members in more detail.  Salaried Member is a term often used to describe a Fixed Share Member.  We don't like it.  Members of LLPs are self employed and we suspect that the word "salaried" may lead HMRC to suspect such a Member was not really self employed.

There are often different types of Equity Members.  These can have different voting rights, like different classes of shares in limited companies.  Full Members usually have full voting rights.  Associate Members often have limited voting rights.

Founder Members are usually created when a traditional partnership converts to an LLP and new Members are admitted.  The Founder Members want to protect the investment they have built up in the business.  For example, many LLP Agreements contain an expulsion clause whereby Members can be removed without giving a reason, so long as all the other Members agree to it.  Founder Members can be exempt from this. 

Founder Members can have additional benefits or privileges and different classes of Member can have different perks, for example cars.

In conclusion, I hope you are now less confused by the words Partner and Member and by the different classes of Members within LLPs.

Mark Briegal is a Partner at Manchester Solicitors Ralli and is responsible for the Partnership Law team.  For further information please contact Mark Briegal at Ralli on 0161 615 0720, mark.briegal@ralli.co.uk or on www.rallipartnershiplaw.co.uk.