Employee to Partnership
Discussion
My wife is 25 years into her career, and has worked at an advertising agency for three years. The work she does is valued, and she's just been offered partnership in the Group company.
I've read through the documentation, and it seems that she'll get a modest (very modest) likely increase in income, plus a handful of shares. It's definitely not the kind of welcome to the club that partners in law and accountancy firms get I suspect.
There will be a written agreement that she'll keep her three month notice period, and other employee benefits, so on a day to days basis not much will change part from there'll be a little more money.
She's been given a huge great pack to read, which explains a lot of how it works but doesn't say much about why it's worth her doing it, beyond some guff about helping shape the direction of the company, which frankly she could just easily do as an employee as far as I can see.
My wife's inclination is that if there's no likely risk, then she might as well do it, as it's a little bit of additional money for not much headache apart from having to pay an accountant to manage the more complex tax situation.
I am more suspicious, and feel she's giving up her legal rights as an employee (replaced by a private contract), for a sum that's been designed to be just enough to persuade her to make a switch.
I'm guessing that there are tax benefits for the company, and it may somehow emotionally locks her in a little more than if she was an employee.
I've tried searching online, and can't find anything relevant to explain what the actual pros and cons might be.
Can anyone either direct me to somewhere on the web where the pros and cons of such schemes are set out, or give a perspective based on the limited info above?
Many thanks.
I've read through the documentation, and it seems that she'll get a modest (very modest) likely increase in income, plus a handful of shares. It's definitely not the kind of welcome to the club that partners in law and accountancy firms get I suspect.
There will be a written agreement that she'll keep her three month notice period, and other employee benefits, so on a day to days basis not much will change part from there'll be a little more money.
She's been given a huge great pack to read, which explains a lot of how it works but doesn't say much about why it's worth her doing it, beyond some guff about helping shape the direction of the company, which frankly she could just easily do as an employee as far as I can see.
My wife's inclination is that if there's no likely risk, then she might as well do it, as it's a little bit of additional money for not much headache apart from having to pay an accountant to manage the more complex tax situation.
I am more suspicious, and feel she's giving up her legal rights as an employee (replaced by a private contract), for a sum that's been designed to be just enough to persuade her to make a switch.
I'm guessing that there are tax benefits for the company, and it may somehow emotionally locks her in a little more than if she was an employee.
I've tried searching online, and can't find anything relevant to explain what the actual pros and cons might be.
Can anyone either direct me to somewhere on the web where the pros and cons of such schemes are set out, or give a perspective based on the limited info above?
Many thanks.
Company or partnership? I suspect it's a partnership, but partnerships don't issue shares. She may have a share of the profits which is different.
Partners generally have different rights to an employee. Her rights will be set out in the agreement.
In theory she should be paid more and be part of the decision making machinery as a partner.
If it's a financial decision, she should consider what the average partner profit share is and compare that to her salary and projected salary. I'd be surprised if there is not a significant difference.
Partners generally have different rights to an employee. Her rights will be set out in the agreement.
In theory she should be paid more and be part of the decision making machinery as a partner.
If it's a financial decision, she should consider what the average partner profit share is and compare that to her salary and projected salary. I'd be surprised if there is not a significant difference.
Alpinestars said:
Company or partnership? I suspect it's a partnership, but partnerships don't issue shares. She may have a share of the profits which is different.
Partners generally have different rights to an employee. Her rights will be set out in the agreement.
In theory she should be paid more and be part of the decision making machinery as a partner.
If it's a financial decision, she should consider what the average partner profit share is and compare that to her salary and projected salary. I'd be surprised if there is not a significant difference.
Many thanks for the quick reply.Partners generally have different rights to an employee. Her rights will be set out in the agreement.
In theory she should be paid more and be part of the decision making machinery as a partner.
If it's a financial decision, she should consider what the average partner profit share is and compare that to her salary and projected salary. I'd be surprised if there is not a significant difference.
Exactly as you say. It's a partnership, and she would receive a share of the profits. The projected profit share vs her salary is not significantly different. The projected profit share is less than 10% more than her current salary, which is why I'm not seeing this as the great opportunity that it's been positioned to her as, as I get the impression that she will have significantly reduced rights.
Re being part of the decision making machinery. She's genuinely not interested in that, and in reality I can't see how she'll have any more influence now than she currently does.
Re shares. She'll also be allocated some stock. Amount TBD, but she heard from a colleague who's already in that it's a token amount.
All gut feeling, and I may be being unreasonably suspicious, but it feels like the company very much want her to do this, whilst telling her it's a great opportunity - and whilst offering her just enough financial inducement to think I might as well.
Alpinestars said:
How do other partners fare financially? She should ask what the average progression and remuneration is.
Thanks. Will suggest she asks. She spoke with one who'd been in for 2-3 years, who's at her level, and the impression she got was that not much changed. Like the idea of asking what average progression and remuneration is. Cheers.
Lots of confused language being used here. If it's a partnership then she can't have shares in it, you also talk about group company. Again this doesn't make sense with how you've described the entity. It may be that if she's looking at a true partnership then as a partner she could become personally liable for any obligations of the partnership.
I'd suggest speaking with someone who can read the docs and truly understand them. Commercial lawyer, accountant, etc
I'd suggest speaking with someone who can read the docs and truly understand them. Commercial lawyer, accountant, etc
Agreed. The OP is being very unclear as to the actual nature of the business structure in which his wife works.
Is it -
i) a normal partnership
ii) a limited liability partnership
iii) a limited company
The word "group" is also used. This usually refers to limited companies where one or more separate limited companies are actually owned by one overarching company (called the holding company).
In formal "partnerships", an individual becomes an equity partner usually by putting money into the partnership. The reward for this is that they receive income in the form of a share of partnership profits rather than a salary
Sometimes, an individual can begin the path towards "partnership" by being made an "associate partner". This usually means that the individual does not contribute any financial amount into the partnership but will receive a salary which would be taxed under the PAYE system.
Limited companies are different. An individual cannot be a "partner" in a limited company. To become an equity "owner" in the company, the individual will usually be expected to buy some shares in the company. Owning shares entitles the individual to receive a distribution of the company profits ion the form of a dividend.
They may continue to receive a salary as well, either as an employee or, perhaps, as a director.
Is it -
i) a normal partnership
ii) a limited liability partnership
iii) a limited company
The word "group" is also used. This usually refers to limited companies where one or more separate limited companies are actually owned by one overarching company (called the holding company).
In formal "partnerships", an individual becomes an equity partner usually by putting money into the partnership. The reward for this is that they receive income in the form of a share of partnership profits rather than a salary
Sometimes, an individual can begin the path towards "partnership" by being made an "associate partner". This usually means that the individual does not contribute any financial amount into the partnership but will receive a salary which would be taxed under the PAYE system.
Limited companies are different. An individual cannot be a "partner" in a limited company. To become an equity "owner" in the company, the individual will usually be expected to buy some shares in the company. Owning shares entitles the individual to receive a distribution of the company profits ion the form of a dividend.
They may continue to receive a salary as well, either as an employee or, perhaps, as a director.
Edited by Eric Mc on Saturday 16th July 18:17
Thanks for the responses. And sorry for not being 100% clear.
I don't think the shares are relevant. I've been given shares at various points in time as an employee. It's commonplace in the industry.
I think in this instance that becoming a partner gives her potential upside re profit share although it looks like it's been managed down. Plus there may be tax advantages of being self employed.
Against that she has much more risk. Of no profit, personal liability, and reduced 'employment' rights.
The upside seems relatively limited. It's the downside that I'm unfamiliar with.
Hope that makes some sense. Apologies for previous ambiguous info. It's because I'm not an expert.
Thanks for the help.
I don't think the shares are relevant. I've been given shares at various points in time as an employee. It's commonplace in the industry.
I think in this instance that becoming a partner gives her potential upside re profit share although it looks like it's been managed down. Plus there may be tax advantages of being self employed.
Against that she has much more risk. Of no profit, personal liability, and reduced 'employment' rights.
The upside seems relatively limited. It's the downside that I'm unfamiliar with.
Hope that makes some sense. Apologies for previous ambiguous info. It's because I'm not an expert.
Thanks for the help.
Alpinestars said:
Still doesn't make sense. She can't be getting shares and be a partner.
Partnership might be loose wording if she's getting shares.
Sorry. Just read the documentation again. No shares. It just doesn't affect any shareholdings she may have (none). It says she will be a partner as a member of the group company partners at Companies House.Partnership might be loose wording if she's getting shares.
At this point in time I get the feeling that the upside is limited (small projected increase in come, plus some tax benefits), whilst the downside is higher liability (as a partner), potential no/lower profits - so no/lower income, and unknown other elements.
Thanks again for your previous pov's.
Countdown said:
I think she's getting "profit share" not shares.
ETA Bit confused about the reference to Companies House. So is it a LLP?
With this type of business, almost certainly. Very unlikely to be a limited partnership or a simple partnership. ETA Bit confused about the reference to Companies House. So is it a LLP?
Edited by Countdown on Saturday 16th July 21:17
Maybe the members of the partnership are individuals like OP's wife, and other companies. And the reference to shares might be in those member companies.
The notion of "shares" is nothing to do with partnerships. Shares are the means in which a shareholder acquires ownership or partial ownership of a limited company.
As I mentioned earlier, there are two sorts of "partnerships", normal "old fashioned" partnerships and the newer concept of a "limited liability partnership", or LLP.
The big disadvantage of becoming a partner in an old style partnership is that EVERY partner becomes 100% liable for the entire debts of the partnership. That is a major risk to undertake.
An LLP is a form of partnership where the liability is limited to the capital injected by the partner and is more akin to a limited company. Indeed, the legal and filing requirements for LLPs are controlled and governed by Companies House. They have become a very popular vehicle for professional firms (accountants, solicitors, architects etc) in recent years because they operate as a partnership for tax purposes but put the partners at less risk.
HOWEVER, HMRC have been monitoring the growth of LLPs for a number of years because they are well aware that many people have been brought into "partnership" in such structures chiefly to try and save the firm large amounts of tax and (especially) NI. Consequently, the rules on who can be treated as a partner in such arrangements have been tightened up in recent years.
She does need to seek professional advice before deciding if this is the correct thing to do.
As I mentioned earlier, there are two sorts of "partnerships", normal "old fashioned" partnerships and the newer concept of a "limited liability partnership", or LLP.
The big disadvantage of becoming a partner in an old style partnership is that EVERY partner becomes 100% liable for the entire debts of the partnership. That is a major risk to undertake.
An LLP is a form of partnership where the liability is limited to the capital injected by the partner and is more akin to a limited company. Indeed, the legal and filing requirements for LLPs are controlled and governed by Companies House. They have become a very popular vehicle for professional firms (accountants, solicitors, architects etc) in recent years because they operate as a partnership for tax purposes but put the partners at less risk.
HOWEVER, HMRC have been monitoring the growth of LLPs for a number of years because they are well aware that many people have been brought into "partnership" in such structures chiefly to try and save the firm large amounts of tax and (especially) NI. Consequently, the rules on who can be treated as a partner in such arrangements have been tightened up in recent years.
She does need to seek professional advice before deciding if this is the correct thing to do.
Eric Mc said:
The notion of "shares" is nothing to do with partnerships. Shares are the means in which a shareholder acquires ownership or partial ownership of a limited company.
As I mentioned earlier, there are two sorts of "partnerships", normal "old fashioned" partnerships and the newer concept of a "limited liability partnership", or LLP.
The big disadvantage of becoming a partner in an old style partnership is that EVERY partner becomes 100% liable for the entire debts of the partnership. That is a major risk to undertake.
An LLP is a form of partnership where the liability is limited to the capital injected by the partner and is more akin to a limited company. Indeed, the legal and filing requirements for LLPs are controlled and governed by Companies House. They have become a very popular vehicle for professional firms (accountants, solicitors, architects etc) in recent years because they operate as a partnership for tax purposes but put the partners at less risk.
HOWEVER, HMRC have been monitoring the growth of LLPs for a number of years because they are well aware that many people have been brought into "partnership" in such structures chiefly to try and save the firm large amounts of tax and (especially) NI. Consequently, the rules on who can be treated as a partner in such arrangements have been tightened up in recent years.
She does need to seek professional advice before deciding if this is the correct thing to do.
Many thanks for the very useful pov. I'd thought the shares were a tangental part of this. Reading the documentation, I see that it's an LLP. Have asked my accountant to take a look at the docs.As I mentioned earlier, there are two sorts of "partnerships", normal "old fashioned" partnerships and the newer concept of a "limited liability partnership", or LLP.
The big disadvantage of becoming a partner in an old style partnership is that EVERY partner becomes 100% liable for the entire debts of the partnership. That is a major risk to undertake.
An LLP is a form of partnership where the liability is limited to the capital injected by the partner and is more akin to a limited company. Indeed, the legal and filing requirements for LLPs are controlled and governed by Companies House. They have become a very popular vehicle for professional firms (accountants, solicitors, architects etc) in recent years because they operate as a partnership for tax purposes but put the partners at less risk.
HOWEVER, HMRC have been monitoring the growth of LLPs for a number of years because they are well aware that many people have been brought into "partnership" in such structures chiefly to try and save the firm large amounts of tax and (especially) NI. Consequently, the rules on who can be treated as a partner in such arrangements have been tightened up in recent years.
She does need to seek professional advice before deciding if this is the correct thing to do.
Very many thanks to everyone for taking the time to reply to my question.
Gassing Station | Business | Top of Page | What's New | My Stuff