LLC/Partnership Formation Key Issues: Distribution Rights, Capital Contributions, Income and Loss Allocations

Recording of a 110-minute CPE webinar with Q&A

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Conducted on Wednesday, June 1, 2022

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Course Materials

This webinar will explain essential considerations advisers, members, and partners should address when forming an LLC or partnership. Our panel of partnership taxation veterans will point out common and often overlooked items that should be considered initially to minimize tax and future operational issues.

Description

Initial partnership considerations go beyond registering the name, applying for identification numbers, and preparing the Articles of Organization. Key to the formation is a partnership agreement that spells out how day-to-day and sticky aspects of running a business are handled.

Flexibility is a primary reason businesses select to operate as a partnership or LLC. Flexible allocations, however, must comply with the provisions of Section 704(b) and have substantial economic effect. Significant flexibility is allowed when initially funding the partnership. One partner can contribute property while the other contributes services. Issues arise with both. One partner could contribute property with a fair market value that is higher or lower than what he or she paid for it. The services partner may not be initially admitted to the partnership and his or her contribution will likely generate taxable income.

In addition to the known considerations, other key considerations are often overlooked. Transferring ownership and whether this right is unrestricted, payouts on dissolution of the partnership, and the level at which capital accounts are required to be maintained should all be addressed at formation. The BBA centralized partnership audit regime has escalated the importance of naming a partnership's representative and having predetermined procedures for handling prior period audit adjustments. Tax practitioners working with partnerships and LLCs need to be able to guide partners and members appropriately when they are establishing partnerships and LLCs.

Listen as our panel of pass-through entity experts provides a checklist of items to consider when forming an LLC or partnership.

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Outline

  1. Partnership agreement
  2. Capital contributions
  3. Distribution rights
  4. Profit and loss allocations
  5. Retirement
  6. Dissolution considerations
  7. Noncompete agreements
  8. BBA centralized audit regime
    1. Partnership representative
    2. Audit adjustments
  9. Other considerations

Benefits

The panel will consider these and other critical issues:

  • Procedures for adding and terminating partners
  • When noncompete agreements should be considered
  • Complications brought about by the BBA centralized audit regime
  • Partner retirement and partnership dissolution issues that partners should address initially
  • Allocation methods for payouts and distributions

Faculty

Amaya-Lainez, Mario
Mario Amaya-Lainez, CPA
Senior Manager, National Tax Office - Partnerships
BDO USA

Mr. Amaya-Lainez specializes in partnership taxation with a primary focus on partnership restructurings, such as...  |  Read More

Berkman, Jeffrey
Jeffrey W. Berkman, Esq., LL.M.
Founding Partner
Falcon Rappaport & Berkman

Mr. Berkman focuses his practice on corporate and securities law matters. He represents entrepreneurs, domestic and...  |  Read More

Van Sickel, Katelyn
Katelyn Van Sickel
Attorney
Crady Jewett McCulley & Houren

Ms. Van Sickel is an associate in the firm’s  general business and taxation practices. Her practice focuses...  |  Read More

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