A fixed share partner is an owning partner in a business. As such, they should sign the Partnership agreement and will have whatever rights and obligations are stated therein. As a partner, they won’t have employment law protection. They will have an agreed minimum monthly income and additionally some form of profit share and under some circumstances a share of the equity of the business. In this article, fixed share partnership agreement, we take a look at some of the features of this type of commercial arrangement.
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What are the rights and obligations of a fixed share partner?
It is likely that a fixed share partner will have less say in the day to day running of the business and important decisions will be made by the other partners. Although this is usually the case, it will depend upon the business. A fixed share partner may look upon this position as a transitory one with the aim being to progress through the company, working their way up to an equity partner. They will be judged upon their ability to carry out the work laid out for them but also to demonstrate an ability to add value to the company. It is worth noting that in some types of companies with a defined hierarchy, there may not be an opportunity of ever owning equity in the business. As such, it is important for all parties to manage their expectations accordingly.
What is a salaried partner?
A salaried partner is normally a title given to a senior employee. As such, they won’t sign the partnership agreement and will be working under some form of an employment contract.
- They will be entitled to a salary and potentially some bonuses – although usually not related to profit
- They will have full employment law protection
- They will be at no risk of sharing any losses
- They shouldn’t have any voting rights in the partnership and there will be elements of control by the other (owning) partners.
- They are taxed as an employee paying PAYE & NI
- They must be careful in case third parties regard them as ‘real’ partners and thereby inadvertently becoming liable for the partnership debts.
What are the different types of partnerships?
Partnerships can be seen to fall into one of two types; a traditional partnership or a Limited Liability Partnership (LLP). In a traditional partnership the relationship between partners is governed by the terms of the partnership deed and, in default, the Partnership Act 1890. In an LLP, the partners (or members) are governed by the terms of the LLP agreement.
One advantage of operating as a partnership is that, as between partners, it need not be overly concerned with employment issues. Partners or members of an LLP are self-employed, so they cannot be employees of the partnership or LLP and as a consequence, they do not have employment rights.
In traditional partnerships, partners tend to fall into one of two groups, equity or salaried partners. A full equity partner will be paid based upon the profits of the partnership and will participate in the management of it. By contrast, a salaried partner is paid a fixed salary and has little say in the management of the business.
A salaried partner may be portrayed to the rest of the world as a ‘partner’ but in reality, they are an employee. In an ideal world, the contract of the salaried partner will be clear and all equity partners would properly document their agreement to the partnership deed.
With LLP members, these are divided into two classes: variable share members, who are akin to equity partners, and fixed share members.
Typically, what practices are trying to achieve with a Fixed Share Partner is a partner who has many of the characteristics of an employee, while a Salaried Partner will typically be an employee with some of the characteristics of a partner.
The most important point to remember is that the title itself does not determine the real status. That can only be established by analysing the detail of the arrangement.
If a title is mismatched to the actual legal status of the person, there is a risk of creating legal uncertainty.
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We have a proven track-record of helping clients set up fixed share partnership agreements. We will guide you though the process and ensure all checks are carried out swiftly and efficiently and we firmly believe that with the right solicitors by your side, the entire process will seem more manageable and far less daunting.
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It is important for you to be well informed about the issues and obstacles you are facing. However, expert legal support is crucial in terms of saving you money and ensuring you achieve a positive outcome.
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