LLP: Employee Or Member?

Published date13 October 2021
Subject MatterCorporate/Commercial Law, Corporate and Company Law, Contracts and Commercial Law
Law FirmBerg Kaprow Lewis
AuthorMr Anthony Newgrosh

Although we are all familiar with the adjective 'self-employed', it is a logically nonsensical term: you cannot as a matter of law enter into a contract of service with yourself so as to become your own employee.

By the same token, you cannot be both a partner in an English partnership and an employee of it: but the position is much less clear when it comes to an LLP established under the Limited Liability Partnerships Act 2000 ('LLPA 2000').

Peter Wilson is the latest in a line of cases in which the question has been considered - in this case, by the Upper Tribunal in [2021] UKUT 0239 (TCC), on appeal from the First-tier Tribunal ('FTT'). What was at stake, in practical terms, was liability to Class 4 National Insurance Contributions.

Although it is for most tax purposes treated as if it were a partnership, an LLP is, like a limited company, a body corporate with a legal existence separate from that of its members. Absent any special rule, therefore, it would be no more problematic for an LLP to employ one of its members than for a company to employ one of its shareholders.

But there is a special rule: and therein lies the confusion. Section 4(4) of LLPA2000 says:

A member of a limited liability partnership shall not be regarded for any purpose as employed by the limited liability partnership unless, if he and the other members were partners in a partnership, he would be regarded for that purpose as employed by the partnership.

Unfortunately, that provision raises as many questions as it answers. Read literally, it makes no sense, for 'if [the member] and the other members were partners in a partnership', the member could never be regarded as employed by the partnership.

In Tiffin v Lester Aldridge [2012] EWCA Civ35 the Court of Appeal had a stab at making sense of it, saying that:

It requires an assumption that the business of the limited liability partnership has been carried on in partnership by two or more of its members as partners; and, upon that assumption, an inquiry as to whether or not the person whose status is in question would have been one of such partners. If the answer to that inquiry is that he would have been a partner, then he could not have been an employee and so he will not be, nor have been, an employee of the limited liability partnership.

Thus the answer given by that case to the question whether you can be an employee of an LLP of which you are a member is - yes, it's possible: but whether you are or not depends on the facts.


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