Partner A loans $100,000 to the partnership with the understanding that each partner (A and B) will be liable for 50% of the loan. What impact, if any, has this action on the Partners' Capital Accounts? Since company liabilities are increased with no increase in assets, I assume that such action will decrease each partner's Capital Account. Comments appreciated.
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Partner Capital Accounts
You've got your analysis a little off.
If Partner A loans the partnership $ 100,000 - there IS an increase in assets and a corresponding increase in liabilities.
In order for there to be equal partnership balances, Partner B needs to sign a promissary note to Partner A for 50% of the loan. THEN each partner is 50/50, with corresponding equal equity.Uncle Sam, CPA, EA. ARA, NTPI Fellow -
Agree, two seperate and distinct transactions, each with it's own seperate documentation. Each transaction is dependent upon the other but remain serperate and dinstinct.Originally posted by Uncle Sam View PostComment
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Llc?
Is the partnership organized as an LLC? If so, that presents an added wrinkle to your analysis.Comment
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Partners Capital Accounts F/U
Yes, the partnership is organized as a 2 member LLC. The partners do have an agreement of 50/50 liability for loan repayment. I still need to know how this changes each partner's capital account. I realize it increases their liability, but how does it affect the ending balance on thier account on Form 1165, Sch K-1; increase or decrease? Thanks for all the comments.Comment
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If a loan
it will increase basis ans liabilities - not the capital accounts. It would have to be a contribution to increase the capital accounts..Comment
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