Partnership question

[Murphyhr]

What is the name of your state (only U.S. law)? Colorado

I own a very small business with 2 other people. We are all equal partners. Last year 1 of the partners discovered some health problems and decided to not work anymore. We had a verbal agreement that she would still be a partner but would get no money unless/until she started working again. Fast forward to this year, we just got our taxes done for the business. Our tax person did our K1's and gave her 1 for 1/3 even though she didn't receive any money. I was assuming that this was kind of the risk she took on by still being a partner. She is upset because she had to claim it and her tax return was a little smaller than she had planned for. She thought she would get a $0 K1. Is this illegal? How should we move on in the future?

 

[LdiJ]

What is the name of your state (only U.S. law)? Colorado

I own a very small business with 2 other people. We are all equal partners. Last year 1 of the partners discovered some health problems and decided to not work anymore. We had a verbal agreement that she would still be a partner but would get no money unless/until she started working again. Fast forward to this year, we just got our taxes done for the business. Our tax person did our K1's and gave her 1 for 1/3 even though she didn't receive any money. I was assuming that this was kind of the risk she took on by still being a partner. She is upset because she had to claim it and her tax return was a little smaller than she had planned for. She thought she would get a $0 K1. Is this illegal? How should we move on in the future?

She owns 1/3 of the partnership therefore she is responsible for 1/3 of the profits. What is commonly done in a situation like hers is that the business distributes enough money to her to cover the taxes on her share.

 

[latigo]

How should you move in the future?

Step one, you hire a knowledgeable lawyer to proceed with the statutory measures necessary to wind up and dissolve your stupid partnership!

If you wish the enterprise to survive and function post dissolution of the stupid partnership, then you take step two.

Which is to have your lawyer restructure, create and register a formal legal entity whereby the participant's personal assets are not on the line for the business debts. And each participant is not the agent for the other participants making all personally liable for not only business debts independently incurred by a participant, but personal liability for torts committed by a participant in the course of exercising express or implied authority. Such as driving a company vehicle and committing negligent homicide.

If steps one and two are followed, step three is to never conduct the business other than as a totally separate entity. Your attorney will explain why.