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Question about LP structure after a partner leaves

Discussion in 'Starting a Business, Incorporation' started by Curtis Turner, Feb 23, 2020.

  1. Curtis Turner

    Curtis Turner Law Topic Starter New Member

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    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.
     
  2. adjusterjack

    adjusterjack Super Moderator

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    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.
     
  3. Tax Counsel

    Tax Counsel Well-Known Member

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    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.
     
  4. zddoodah

    zddoodah Well-Known Member

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    Depends on what the partnership agreement says.
     

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