Member's participation rights are the rights of a member against the LLP that arise under the members' agreement.
Where profits are automatically divided as they arise, so the LLP does not have an unconditional right to refuse payment, the amount arising that are due to members are in the nature of liabilities. They are therefore treated as an expense in the Profit and Loss Account in the relevant year. To the extent that they remain unpaid at the year end, they are shown as liabilities in the Balance Sheet.
Conversely, where profits are divided only after a decision by the LLP or its representative, so that the LLP has an unconditional right to refuse payment, such profits are classed as an appropriation of equity rather than as an expense. They are therefore shown as a residual amount available for discretionary division among member in the Profit and Loss Accounts and are equity appropriations in the Balance Sheet.
Other amounts applied to members, for example remuneration paid under an employment contract and interest on capital balance, are treated in the same way as all other divisions of profits, as described above, according to whether the LLP has, in each case, an unconditional right to refuse payment.
All amounts due to member that are classified as liabilities are presented in the Balance Sheet within 'Loans and other debts due to members' and are charged as an expense. Amount due to members that are classified as equity are shown in the Balance Sheet within 'Member' other interests'.