Deficit Partner Capital Account
Balances In a General Partnership Represent Liabilities
Example: Partners' capital position in A General
Partnership with a deficit of
-$397,000 allocated as follows to its partners:
Deficit General Partnership Equity -$397,000
Most state laws, including here in State of
Economically, it is necessary to also consider the acquisitions between partners occuring outside the partnership." So for example, if
$1 million of the General Partnership assets were used to
acquire the Sellers' interest, then the above liability to
other partners may be equitable.
To the extent there is unpaid compensation due to
Founder, it is necessary to carefully document those efforts
contemporaneously so that if at some future windfall the
Founder intends to receive those "wages," he/she can document
years of efforts that were undercompensated and the amount due
Compensation studies are available to assist with
valuing such work. In
defending against minority lawsuits alleging excess
compensation, it is very important to maintain activity logs
and a diary of activities.
Such notes are also helpful in compiling annual reports
Unpon the discovery of material disparities between partners like shown above,
we recommend a detailed historical reconstruction all capital account be undertaken in order to obtain a complete
understanding of the components of her/his liquidation
liability to all the other partners.
Nonproportional Distribution Trap!
As a general partnership, State law does not prohibit
disproportionate distributions, however, it is important to
understand the long-term consequences as eluded to above. At liquidation, the
resulting uneven capital account balances which became out
of sink with the tenant-in-common real estate holdings,
represents a liability to be equalized to those
predetermined ownership interests.
If you have any questions, do not hesitate to contact the professionals at Dana S. Beane & Company, PLLC
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