Question about LP structure after a partner leaves

[Curtis Turner]

Jurisdiction

Texas

Considering the following legal structure:

• Limited Partnership:
  • GP (1%) - LLC owned by Person A
  • LP #1 (74%) - Person A
  • LP #2 (25%) - Person B

My question is what happens to the partnership if Person B leaves (there are no other individuals/entities involved)?

Thanks in advance.

 

[adjusterjack]

What does the LP agreement say about it?

If it doesn't specify what is supposed to happen, why didn't it?

You're supposed to address these contingencies in writing when you first go into business with somebody.

Beyond that, what happens depends on what A and B agree on what happens.

Answer these questions:

What does A want?
What does B want?

Without the answers to the four questions there really isn't anything to talk about.

 

[Tax Counsel]

Considering the following legal structure:

• Limited Partnership:
  • GP (1%) - LLC owned by Person A
  • LP #1 (74%) - Person A
  • LP #2 (25%) - Person B

My question is what happens to the partnership if Person B leaves (there are no other individuals/entities involved)?

Thanks in advance.

Under state law it's still a limited partnership, but it now has just one limited partner instead of two. But for federal income tax purposes it's not a partnership anymore, assuming that the sole member LLC that is the GP did not elect to be treated as a corporation for federal tax purposes. For federal tax purposes, prior to B leaving, it was a partnership of two people, A & B. When B leaves, the only owner left is A, and that terminates the partnership, triggering the rules that apply to partnership terminations.

 

[zddoodah]

My question is what happens to the partnership if Person B leaves (there are no other individuals/entities involved)?

Depends on what the partnership agreement says.