Are you legally a partner?

[gretz7899]

Hello

are you considered a legal partner in a business partnership if you receive a k1 but have no operating agreement between the partners?

 

[Just Blue]

Hello

are you considered a legal partner in a business partnership if you receive a k1 but have no operating agreement between the partners?

What state?

 

[gretz7899]

Maryland

 

[FlyingRon]

For what purpose are you trying to make this determination?

To answer your question, you and your partner have to agree to operate the business together. It is not required you have a written agreement, although it is probably a very good idea.

 

[gretz7899]

So the one partner wants out and paid his share based on his percentage and was told by his accountant that he is legally a partner bc he was issued a k1 last year. The other partner claims he is not a partner bc their is no operating agreement and is not looking to pay.

 

[FlyingRon]

Both sides are incorrect in my estimation. There is a partnership if they agree to transact business together. The K-1 is the effect, not the cause of the partnership. But the lack of a written operating agreement isn't required.

As to whether the ersatz partner can recover "his share" would depend on information not presented here. Specifically, if there is any evidence that such an agreement to conduct business together exists, and then whether there is any money due under such agreement. If we're talking more than a small amount of money, the parties should be speaking to attorneys and not an accountant.

 

[davew9128]

This is more of a state contract law question and not a tax question.

 

[Taxing Matters]

Hello

are you considered a legal partner in a business partnership if you receive a k1 but have no operating agreement between the partners?

If this goes to court whether there is a partnership will be determined by all the facts and circumstances as determined from the evidence submitted by both sides on the issue. The issuance of a K-1 would be admissible evidence tending to show that there was a partnership, but won't be conclusive in proving that there was partnership. You mention an operating agreement, however, and that suggests a LLC. LLCs do not have partners because they are not partnerships (although the IRS by default taxes the income from them as partnerships by default if they have more than one member). If it was a LLC issue would be whether the person was a member of the LLC. For that, it would be important to know all the facts regarding the LLC, including the state in which it was organized as each state has different rules for what is required for LLCs. Again, though the K-1 would be evidence to help prove the person was member. The lack of an operating agreement might be useful as evidence that the person was not a member, depending on what other evidence there is. In short there isn't going to be an easy answer to this. Both parties will want to see a business lawyer (a different lawyer for each) to help sort this out.

 

[gretz7899]

Thanks everyone!