A Partner by Any Other Name…. Peter Scott Peter Scott Consulting

PETER SCOTT CONSULTING The management of change The changing needs of clients Recruitment and retention of good people The war on talent

PETER SCOTT CONSULTING 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? 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 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 …….? 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 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? 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? 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? Desire to keep equity tight External perception of size A learning step

PETER SCOTT CONSULTING 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 Not ‘real’ partners – unsatisfactory status Contractually and tax status that of employees Cost to firm of employers’ NIC

PETER SCOTT CONSULTING 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 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? More regulated Default rules Statutory rights

PETER SCOTT CONSULTING 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 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? 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

Any questions?