Partnerships, directorships and dismissal

By Tolley in association with Hogan Lovells
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The following Employment Tax guidance note by Tolley in association with Hogan Lovells provides comprehensive and up to date tax information covering:

  • Partnerships, directorships and dismissal
  • Partnerships
  • Directorships

In some situations, the ordinary rules relating to dismissals do not apply or additional rules need to be considered. Two of the most important of these are when a partnership dissolves and when an employee is also a director of a company.

Partnerships

Partners in an unlimited partnership are not also employees of the partnership and do not enjoy the same statutory employment rights as employees on dismissal. A person who is employed by an unlimited partnership is employed by each of the partners acting together.

Palumbo v Stylianou (1996) 1 ITR 407 (subscription sensitive)

Theoretically, this means that when a partner joins or leaves, the contract of employment must come to an end, as the employee is no longer employed by the same legal entity.

Jeetle v Elster [1985] IRLR 227 (subscription sensitive)

Scots law has resolved this by finding that a partnership has a separate legal personality from the individual partners, whereas English law prefers to see it differently.

The situation when one or more partners leave a firm ― or new ones join ― but otherwise the partnership continues is a technical dissolution, but will not terminate employment where the dissolution causes no interruption in trading.

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