General Partner has negative capital account.

[Maxpowers]

Jurisdiction

Utah

I am a limited partner in a limited partnership that was started in the 70's. I recently found out that one of the general partners has a negative capital account but continues to to take distributions. I was under the impression that your percentage of ownership in the limited partnership is based on his capital account, unless stated otherwise in the partnership agreement. Does he even own a stake in this business anymore?

 

[adjusterjack]

I was under the impression that your percentage of ownership in the limited partnership is based on his capital account, unless stated otherwise in the partnership agreement.

No. You've got that backwards. It has to be stated in the partnership agreement for that to be true.

Does he even own a stake in this business anymore?

I'm sure that he thinks he does.

You are apparently rather uneducated about how business partnerships work. I suggest you get yourself and your partnership contract to an attorney and get educated.

 

[Maxpowers]

Can you please elaborate a little on your response? I don't understand how I have this backwards.

According to Utah code 48, by definition a distribution to a partner is in fact a sale of partnership transferable interest back to the limited partnership.

If his capital account is not the representation of the partners transferable interest, then what is?

Keep in mind there is no prevision in the partnership agreement that states a partner (general or otherwise) may or may not take distributions over the amount of contributions and cumulative yearly increases and decreases, It only states that the limited partnership will operate in accordance with Utah code 48.

 

[adjusterjack]

Can you please elaborate a little on your response? I don't understand how I have this backwards.

A contract specifies the duties of the parties. If a duty is not specified in the contract then the duty does not exist unless it is specified in the contract (or in a statute or by common law).

I was under the impression that your percentage of ownership in the limited partnership is based on his capital account, unless stated otherwise in the partnership agreement.

What you appear to be saying there is that the default is that the percentage of ownership in the limited partnership is based on his capital account even if that is not written in the contract.

What I am saying is that it might not be the requirement unless it is written in the contract. That's what I meant by having it backward.

To put it another way, some people say "It didn't say I couldn't do it." That's backward because it has to say you could do it in order to be able to do it.

According to Utah code 48, by definition a distribution to a partner is in fact a sale of partnership transferable interest back to the limited partnership.

I'm looking at Utah Code 48. It's very long and I'm having trouble finding where that definition it. Please cite the section number for me.

2015 Utah Code :: Title 48 - Unincorporated Business Entity Act :: Chapter 2e - Utah Uniform Limited Partnership Act

If his capital account is not the representation of the partners transferable interest, then what is?

That part I did find:

48-2e-701. Nature of transferable interest.
The only interest of a partner which is transferable is the partner's transferable interest. A transferable interest is personal property.

Keep in mind there is no prevision in the partnership agreement that states a partner (general or otherwise) may or may not take distributions over the amount of contributions and cumulative yearly increases and decreases, It only states that the limited partnership will operate in accordance with Utah code 48.

The code is very long and I don't have the time or the inclination to study the whole thing to analyze your situation but I did find the following section regarding "liability for improper distributions."

2015 Utah Code :: Title 48 - Unincorporated Business Entity Act :: Chapter 2e - Utah Uniform Limited Partnership Act :: Part 5 - Contributions and Distributions :: Section 505 - Liability for improper distributions.

If you feel that the general partner is improperly taking distributions then consult an attorney and take the appropriate action in court to stop it. Otherwise nothing changes.

 

[Maxpowers]

I really appreciate the time you spent on your response, Thank you.
Im realizing that I should have been a lot more specific with my original question. But first things first.

I'm looking at Utah Code 48. It's very long and I'm having trouble finding where that definition it. Please cite the section number for me.

Title 48 Chapter 2e Part 1 Section 102 (4)
"Distribution" means a transfer of money or other property from a limited partnership to a person on account of a transferable interest or in the person's capacity as a partner. The term:
(a) includes:
(i) a redemption or other purchase by a limited partnership of a transferable interest; and
(ii) a transfer to a partner in return for the partner's relinquishment of any right to participate as a partner in the management or conduct of the limited partnership's activities and affairs or to have access to records or other information concerning the limited partnership's activities and affairs; and
(b) does not include amounts constituting reasonable compensation for present or past service or payments made in the ordinary course of business under a bona fide retirement plan or other bona fide benefits program.

What you appear to be saying there is that the default is that the percentage of ownership in the limited partnership is based on his capital account even if that is not written in the contract.

That is exactly what I'm asking. I have been told many times by lawyers, professors and text books that if there is no other provision in a partnership agreement then the default is that ownership is based on the capital contributed when the partnership is formed, and that if a partner takes a distribution that is not equal in percentage to the rest of the partners he then either louses or gains ownership in the partnership.
My questions is, is that true? I have read Title 48 and a good portion of the Uniform Limited Partnership Act looking for an answer to no avail. I was hoping someone here might have a definitive answer as to whether or not that is true and if so where can it be found?

To give a little background. We have been having a lot of problems with this general partner not just taking distributions. If I could somehow prove that he no longer has any interest in the company,then we might be able to force him out of the partnership before he can do anymore damage.

 

[adjusterjack]

I have been told many times by lawyers, professors and text books that if there is no other provision in a partnership agreement then the default is that ownership is based on the capital contributed when the partnership is formed, and that if a partner takes a distribution that is not equal in percentage to the rest of the partners he then either louses or gains ownership in the partnership.

None of that stuff means anything until you pay a lawyer to review your partnership agreement, the business activity and accounts, and what your general partner is doing.

Even my opinion based on a superficial analysis would be meaningless if you aren't willing to hire a lawyer because I haven't seen your partnership agreement or audited the business account and I certainly have no desire to do so.

I think it's time you paid a lawyer instead of being "told" this, that and the other thing.

 

[Maxpowers]

I'm not sure why you feel it is necessary to be rude. First you called me uneducated and now you're down playing my education. I was not simply "told" something, It was taught to me at one of the best business schools in the state. All I'm asking for is a reference.
I was under the impression that this was a forum, a place to bounce ideas off of one other to help solve problems.
I had a meeting scheduled with my lawyer before I first posted here. I just want to be prepared with the best information when I go.
I guess the bottom line is if you don't know the answer to a question and you not willing to help find it, then maybe you should just keep quiet and give someone smarter then you are a chance to reply.

 

[Maxpowers]

Generally, your taxes wont go up unless there is a permanent improvement to the property. When you build a home or a building on a foundation, that becomes part of the real estate and is considered an improvement. Temporary structures (things that are not considered real property) dont add any value to the property and should not have any affect on your property tax.

It sounds to me like ownership of the car is not the issue here. If I understand right she is trying to write off her commuting miles as a business expense which is not allowed no matter who owns the car.

Your W-4 does not need to be amended for 2015 as long as you still withheld enough to cover tax liability.