Partnerhip in Business

[S T]

In a business arrangement under a Partnership Agreement (not LLC) for the partners to own the business in any percentage, but only one partner participates in the profit and/or losses.

Example: Partnership consists of Partner A and Partner B

Partner A has 80% ownership
Partner B has 20% ownership

Partner B would like to NOT participate in the profits and losses and would like Partner A to have 100% of the profits and losses.

I know it can be done on a LLC, but can it be done on a regular Partnership?

Thanks

Sandy

[JG EA]

TTB says "Limited partnership. A limited partnership is formed under a
state limited partnership law and composed of at least one general
partner and one or more limited partners."

[S T]

Not Limited

No this is a general partnership.

Sandy

[Jesse]

Does Partner B participate in the business activities?

B could then receive guaranteed payments for services, and if the partnership agreement states he receives no share of the profit or loss I would think you would be fine.

If no participation, no guaranteed payments, I still don't understand why you would not be able to spell out in the p-ship agreement that he is to receive no share of the profits/losses as long as he is indeed not receiving any compensation or share of the profits. But maybe I'm missing something?

[BHoffman]

Destructions for 1065 seem to indicate the Proft, and the Loss, and the Capital can be allocated separately as per the partnership agreement.

IRC 704 addresses partnership allocations.

[Gretel]

Partnerships are free to allocate any way they want....BUT then it is required to have language in the partnership agreement to make sure these allocations have economic effect. I can e-mail you a sample for this, there is also info in TTB.

One caveat is that you need to have to separate set of books to keep track of FMV and book value.

[S T]

Material Participation

Part B in this partnership example, does not participate in any of the daily operations of the business activities of the partnership and is not receiving any guaranteed payment.

Gretel, that would be great if you could email me.

Thanks,

Sandy

[Gretel]

check your e-mail

[DTS]

Gretel

Would you mind emailing me this example, as well?

Thank you,

D