van Winkelhof v Clyde: English Court of Appeal confirms that a partner cannot also be an employee

The English Court of Appeal noted that, at common law, it is not possible for "a partner in a partnership [to] be an employee of the partnership, because it is equally not possible for an individual to be an employee of himself and his co-partners" and that "a partner need not be remunerated by reference to profit ... and that it is no bar to being a partner that he does not make any capital contribution."

The first point is consistent with the CRA position in Income Tax Technical News, No. 30, that remuneration received by a partner for work performed in the course of the partnership business is properly treated as a distribution of income or a draw against capital (given that an agreement between a partnership to employ a partner would be an attempt by the particular partner to enter into a contract of employment with himself or herself) and would not be deductible in computing partnership income.

The second point supports the legal validity of the concept of partners with pre-determined draws.

The third point indicates, for example, that it is not necessary for a general partner of a LP to contribute capital for its GP interest (although most lawyers have this done anyway.)

Neal Armstrong. Summary of Bates van Winkelhof v Clyde & Co LLP, [2012] EWCA Civ 1207 under s. 96.