The partners of a professional partnership (ABCD LLP) are Messrs. B and D, who hold their partnership interests directly and the personal Holdcos for Messrs. A and C. The shares of Serviceco (which provides its services exclusively to ABCD LLP and deals at arm’s length with each partner) are held directly by the three individuals and Mr. D's Holdco. CRA first noted:
[G]iven that Serviceco exclusively provides services to ABCD LLP, Serviceco is not a partner of ABCD LLP, and at least one of Serviceco's shareholders has a direct or indirect interest in that partnership (Mr. A and Mr. C have an indirect interest, while Mr. B has a direct interest, in ABCD LLP), Serviceco is a "designated member" of ABCD LLP.
CRA went on to find that of the four partners, only B would be able to assign to Serviceco under s. 125(8) all or any portion of the business limit that had been allocated to him by the partnership. In the case of Mr. D, the problem was that although he was a partner of ABCD LLP, he was not a shareholder of Serviceco. The Holdcos for A and C had essentially the same problem: they were partners of the partnership but not shareholders of Serviceco.