Professional Documents
Culture Documents
McGraw-Hill/Irwin
Partnership is
Association of two or more persons to carry on, as co-owners, a business for profit
Individual Partner is Liable for his own actions and for the actions of partnership employees under his supervision. The LLP as whole however is responsible for the actions of all partners and employees.
Ease of formation Limited life Mutual agency Co-ownership of partnership assets and earnings
LLP No Income Tax File Information Return Partners reports their share as ordinary net income and liable to pay tax.
Corporation Subject to Income Tax Distribution of Income also taxable in hands of Stockholders. A Subchapter S corporation may elect to be treated as a partnership for income tax purposes.
Professional corporations
LLP CONTRACT
An Agreement that will establish many issues that arise Disputes between partners not referenced in contract can be resolved:
- Arbitration - In court
1. Date of formation and planned duration of the partnership, names of the partners, and name and business activities of the partnership. 2. Assets to be invested by each partner and the procedures for valuing noncash assets invested. 3. Authority of each partner and the rights and duties of each. 4. The accounting period to be used, the nature of accounting records, and financial statements. 5. The plan for sharing net income and losses. 6. Salaries and drawings allowed to partners and any penalties for excessive withdrawals. 7. Insurance on the lives of partners, with the partnership or surviving partners named as beneficiaries. 8. Provisions for arbitration of disputes.
1. Equally, or in some other ratio. 2. In the ratio of the partners' capital account balances on a specific date, or in the ratio of average capital account balances during the year. 3. Allowing interest on partners' capital account balances and dividing the remaining net income or loss in a specified ratio. 4. Allowing salaries to partners and dividing the resultant net income or loss in a stated ratio. 5. Bonus to managing partner based on income. 6. Allowing salaries and interest on capital account balances, and dividing the remaining net income or loss in a stated ratio.
10
Capital Accounts Drawing or Personal Accounts Accounts for loans to and from Partners
11
CAPITAL ACCOUNT
INCREASED BY
12
as Non-Current
13
DRAWING ACCOUNT
WITHDRAWING OF CASH OR OTHER ASSETS BY PARTNERS IN ANTICIPATION OF NET INOME OR DRAWINS THAT ARE SALARY
14
15
Errors in the measurement of partnership net income or loss for prior accounting periods must be analyzed The income-sharing ratio is changed or when a change in partners takes place. Capital account balances are restated based on each partner's share of the corrected net income for each period.
16
Operations of a limited liability partnership generally are not interrupted by a change in partners; Changes result when:
Partner
is admitted to the firm, Partner retires from the partnership Partner dies
17
New Partner by
Acquisition of all or part of the interest of one or more of the existing partners Investment of assets in the partnership
18
To New Partner
(if the new partner has unusual ability or invests the net assets of a business enterprise of superior earning power in the partnership)
The new partner may invest an amount that is larger than the new partner's percentage share of net assets, thus requiring the recognition of a bonus or goodwill to the existing partners.
The new partner may invest an amount that is less than his or her percentage share of net assets, thus requiring the recognition of a bonus or goodwill to the new partner
19
Record of Goodwill
New partner invests an amount larger than the carrying amount of the equity in net assets acquired, the transaction generally is recorded by the bonus method because the implied goodwill was not paid for by the partnership Restatement of assets to current fair value before a new partner is admitted to a limited liability partnership may be the most convenient method of achieving equity among the partners
20
Retirement of Partner
21
Retiring Partner
A retiring partner may sell his or her equity in the partnership, to an existing partner, or to a new partner
If the amount received by a retiring partner differs from the carrying amount of his or her equity, the difference generally is recorded as a bonus, either to the retiring partner or to the remaining partners
22
Death of Partner
LLP contract often provide for life insurance policies on each others lives for settlement of estate of a deceased partner Buy-sell agreement may be formed
23
Formation of LP
Formation of LP is evidenced by a certificate filed with the county recorder of principal place of business Certificate includes a number of items in addition to those found in the typical contract of a limited liability partnership Membership is offered to prospective limited partners in units The membership units offered to prospective limited partners may have to be registered with the Securities and Exchange Commission (SEC) SEC has provided guidance for such registration (In Industry Guide 5)
24
There must be at least one general partner Limited partner have no obligation for unpaid liabilities of LP Limited partner can not participate in management of of LP Limited partner may not provide services as their investment Last name of limited partner may not appear in the name of LP
25