Question:
A company has a 40% interest in an LLP. The director of the company does not receive a wage from the company, but receives salary from the partnership.
Is this partnership salary disclosed as directors remuneration in the company financial statements in full or just the portion of the salary that relates to the directorship of the company?
Answer:
The statutory references will depend on whether the LLP is considered an associate, or a subsidiary (i.e. there is some other mechanism in place, other than voting rights, by which the company has the ability to control the LLP).
When it comes to the entity being a subsidiary i.e. the partnership being controlled by a company, then the requirements fall under s305 of CA2014, which requires disclosure of directors’ rem for amounts received from subsidiary entities. The amount to be recognised is that in respect of “qualifying services”.
As per CA2014 s305(3) – “In this section “qualifying services”, in relation to any person, means his or her services as a director of the company and his or her services, while director of the company, as director of any of its subsidiary undertakings or otherwise in connection with the management of the affairs of the company or any of its subsidiary undertakings.”
Therefore, the amount to be recognised is likely to be the full amount – it is the amount that relates to the director being a director of the company, but also while director (or equivalent) of any subsidiary entity. The only amounts that could potentially be excluded under this definition would be any remuneration received for being a “normal” employee – if he did the same work as another employee, and not in his role as director. However, they’d be caught be FRS102 s33.7 requirement to disclose key management personnel compensation in total.
When it comes to the entity being only an associate, and control not being present, s305 isn’t relevant, as it only relates to the company itself, any subsidiaries, and any holdco. However, s309 requires similar disclosures for entities in which the director has a material interest, either directly or indirectly; it is likely that the 40% holding would be a material interest.
The disclosure requirements in s309 are worded differently – they talk about needing to disclose the particulars of the arrangement, the name of the director, and the nature of the interest. However, ultimately, it would probably boil down to the same level of information that is disclosed.
All that being said, regardless of whether the LLP is deemed to be an associate or a subsidiary, it would be a related party, and so the transaction would require disclosure under FRS102 s32. In this instance, only the actual RP transaction requires disclosure, so you would only need to disclose the amount that the director receives from the LLP, which may or may not be the same as the figures required under company law above.