Partnership liquidating distributions examples

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The book capital account often does not reflect this though, because income/loss does not always reflect the appreciation/depreciation of the entity’s value.

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The intention of the targeted capital allocations is that each partner’s book capital account reflects the amount that partner would receive upon liquidation of the partnership.If such partner has a deficit balance in his/her capital account following the liquidation of his/her interest in the partnership, he/she is unconditionally obligated to restore the amount of such deficit balance or the agreement provides for a “qualified income offset.”Conversely, the targeted capital allocation language we are seeing more frequently in partnership agreements is more of a “tax follows cash” approach.With this method, the partnership makes distributions based up on the liquidation provisions of the operating agreement (usually referred to as the “waterfall”).We advise you to seek independent professional advice if you suspect your limited liability partnership is, or is about to become, insolvent.As a general rule, an authorised insolvency practitioner or other professional will be appointed to manage a limited liability partnership’s affairs when insolvency proceedings are initiated. If the Registrar has reason to believe that a limited liability partnership is not carrying on business or is not in operation, the limited liability partnership’s name may be struck off the register and the limited liability partnership dissolved without going through liquidation.

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