In today's article, we will present you a very detailed topic - relating strictly to single-member limited liability companies, i.e. those that have one shareholder who holds all the shares in the company.
Is it possible to conclude an employment contract with such a partner?
As a rule, no. There can be no employment relationship where a partner is a sole shareholder in a limited liability company – the capital of both entities is combined, and as case law indicates, the consequence is that the requirement for remuneration for work is eliminated.
It is even more impossible to employ an employee who is a member of the management board or a person performing such functions in the company under an employment contract – because then the possibility of considering the employee to be subordinate to anyone is completely eliminated – which is one of the constitutive conditions for the creation of an employment relationship.
Exception
The Supreme Court indicated an exceptional situation in which the employment of a sole shareholder of a company will be permitted in its judgment of 13 September 2016, reference number III UK 226/15. It specified the conditions that must be met for the employment to be deemed proper, i.e.:
- „such employment takes place in a specialist position related to the company's activities;
- the findings confirm the need for a partner to work for the company in such a position;
- the sole shareholder is not involved in the company's day-to-day management activities;
- the sole shareholder is actually subject to the instructions of the persons managing the company or managing its individual departments when performing work for the company.”
To sum up, before choosing the relationship between the company and the partner, the basis for the mutual obligations of both entities should be carefully considered.
This article is for informational purposes only and does not constitute legal advice.
Legal status as of November 28, 2024
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