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Richard
Richard, Attorney
Category: Business Law
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Experience:  32 years of experience practicing law and a businessman.
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Ray, Linda, and Nancy form a partnership. Ray and Linda contribute

Customer Question

Ray, Linda, and Nancy form a partnership. Ray and Linda contribute property and cash. Nancy contributes only services. Linda dies, and the partnership is liquidated. After all debts are paid, the surplus is not sufficient to pay back Linda’s estate and Ray for the property and cash originally contributed by Linda and Ray. Nancy claims that the balance should be divided equally among Ray, Linda’s estate, and Nancy. Is she correct?
Submitted: 7 years ago.
Category: Business Law
Expert:  Richard replied 7 years ago.

It would depend entirely on what the distribution provisions of the partnership agreement provided.

 

If the distribution provisions provided that upon liquidation, the assets are to be distributed based on positive capital accounts, then the cash would be distributed to Linda's estate and Ray.

 

If the distribution provisions provided that all distributions, liquidation or not, are to be distributed first to Linda and Ray until Linda and Ray have received cumulative distributions equal to their contributions and then the balance to be split among all partners, then the cash would be distributed to Linda's estate and Ray.

 

If the distribution provisions simply provided that all distributions, liquidation or not, are to be distributed equally among the partners, then the cash would be distributed equally to all 3 partners...this would then result in Linda's estate and Ray then having a capital loss for their resulting positive capital account and Nancy would have phantom income for her resulting negative capital account balance.

 

 

I hope this has given you the guidance you were seeking. I wish you the best of luck!

 

 

 

The information given here is not legal advice. As all states have different intricacies in their laws, the information given is general only. This communication does not establish an attorney-client relationship with you. I hope this answer has been helpful to you.

Customer: replied 7 years ago.
I submitted three questions, did you receive them?
Expert:  Richard replied 7 years ago.

I'm sorry...The only thing in the box was the following:

 

Ray, Linda, and Nancy form a partnership. Ray and Linda contribute property and cash. Nancy contributes only services. Linda dies, and the partnership is liquidated. After all debts are paid, the surplus is not sufficient to pay back Linda's estate and Ray for the property and cash originally contributed by Linda and Ray. Nancy claims that the balance should be divided equally among Ray, Linda's estate, and Nancy. Is she correct?

Customer: replied 7 years ago.
Here are the questions I submitted; <p>1.Ray, Linda, and Nancy form a partnership. Ray and Linda contribute property and cash. Nancy contributes only services. Linda dies, and the partnership is liquidated. After all debts are paid, the surplus is not sufficient to pay back Linda's estate and Ray for the property and cash originally contributed by Linda and Ray. Nancy claims that the balance should be divided equally among Ray, Linda's estate, and Nancy. Is she correct? </p><p> </p><p>2. Baxter, Bigelow, Owens, and Dailey were partners in a New York City advertising agency. Owens, who was in poor health and wanted to retire, advised the partners that she had assigned her full and complete interest in the partnership to her son Bartholomew, a highly qualified person with 10 years of experience in the advertising business. Baxter, Bigelow, and Dailey refused to allow Bartholomew to attend management meetings and refused his request to inspect the books. Bartholomew pointed out that his mother had invested as much in the firm as any other partner. He believed, as assignee of his mother's full and complete partnership interest, that he is entitled to (a) inspect the books as he sees fit and (b) participate fully in the management of the firm. Was Bartholomew correct? <br /><br />3. Amy xxx and Paula xxx operated as a partnership for xxx xxx, an infants' and children's clothing store. They operated the business very successfully for three years, with both Paula and Amy doing the buying and Paula keeping the books and paying the bills. Amy and Paula decided to expand the business when an adjoining store became vacant. At the same time, they incorporated the business. xxx xxx, Inc., was a major supplier to the business before the expansion. After the expansion, business did not increase as anticipated, and when a nationally known manufacturer of children's apparel opened a factory outlet nearby, the business could not no longer pay its bills. xxx xxx, Inc. which had supplied most of the store's stock after expansion, sued Amy and Paula as partners for bills due for expansion stock. xxx, Inc. did not know that Amy and Paula contended that the business was incorporated and that they therefore were not liable for business debts occurring after incorporation, Were Amy and Paula correct?</p>
Expert:  Richard replied 7 years ago.

2) Again, this depends on what the Partnership Agreement provides. If it requres consent for an assignment or that any assignment makes the recipient merely an "assignee" rather than a substituted partner, then the recipient would either not be entitled to receive the interest without consent, or would not be able to participate in management unless the other partners agreed to admit the recipient as a substituted partner. If the Agreement allows assignments and that the recipient would be admitted as "substituted partner" automatically, then Bartholomew would be correct.

 

3) The incorporation of the business required them to file Articles of Incorporation with the Secretary of State. The new business name would have been required to include something such as Inc., Corp., Corporation, etc. to indicate the limited liability status of the firm. As long as Amy and Paula either: i) changed all cards and stationary and invoices to show the new corporate name, or ii) if they did not, filed assumed name certificate with the Secretary of State and local county...then they would be protected. If they did neither, xxx would have a valid claim.

 

 

I hope this has given you the guidance you were seeking. I wish you the best of luck!

 

 

 

The information given here is not legal advice. As all states have different intricacies in their laws, the information given is general only. This communication does not establish an attorney-client relationship with you. I hope this answer has been helpful to you.

Richard and other Business Law Specialists are ready to help you
Customer: replied 7 years ago.

If you can provide the reference material, web site, etc that would be helpful because we have to cite our sources, thanks.

Expert:  Richard replied 7 years ago.

1) It's just basic partnership tax law under the Internal Revenue Code allocation and capital contribution provisions. 2) This is right out of the rules governing most state's partnership laws...the Uniform Partnership Code. 3) The last is out of each state's Code for Corporations. Each state's specific provisions are different.

 

That is about as specific as I can get. This site is basically set up to provide you basic answers to basic questions. It is not designed or priced to provide a fully researched and cited completed homework assignment. Furthermore, each question is supposed to be one question for one price. I've answered 3 questions for you.

 

I believe I have adequately answered your questions, and I would appreciate it if you would please click the GREEN ACCEPT button NOW, so that I receive credit for my work; otherwise, though you have made a deposit, I do not receive credit.

Customer: replied 7 years ago.
I understand, what you sent will help. Thank you very much, I submitted payment.
Expert:  Richard replied 7 years ago.
Thanks so much! Have a great day!