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Table of Contents
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List of Forms by Chapter - Chapter 1 — Formation of General and Limited Partnerships in Illinois and Income Tax Aspects
- I. [1.1] Introduction
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II. [1.2] Formation of General Partnerships - [1.3] Basic Law
- [1.4] Formation of a Partnership
- [1.5] Drafting General Partnership Agreement
- [1.6] Preamble
- [1.7] Name and Business Address of Partnership
- [1.8] Term
- [1.9] General Purpose
- [1.10] Contributions to Capital
- [1.11] Profits and Losses
- [1.12] Salaries and Draw
- [1.13] Management
- [1.14] Books of Account
- [1.15] Bank Accounts
- [1.16] Expulsion of Partner
- [1.17] Disability
- [1.18] Dissolution and Winding Up of Partnership or Liquidation of Partner’s Interest
- [1.19] Arbitration of Disputes
- [1.20] New Partners
- [1.21] Miscellaneous Provisions
- [1.22] Conversion of Partnership into Limited Liability Company or Limited Partnership
- [1.23] Merger of Partnership and Limited Liability Company
- III. [1.24] Formation of Professional and Personal Service Partnerships
- [1.25] Characteristics of Professional or Personal Service Partnerships
- Initial Partnership Considerations
- [1.26] Initial Conference
- [1.27] Discussion of Advantages and Disadvantages
- [1.28] Collecting Information and Estimating Costs
- [1.29] Delegation of Responsibility
- [1.30] Comparison of Corporation and Partnership or Limited Liability Company Tax Benefits
- [1.31] Partnership Provisions Commonly Found in Professional Service Partnerships
- [1.32] Contributions to Capital
- [1.33] Partner’s Share of Profits and Losses
- [1.34] Payment to Retiring or Withdrawing Partner
- [1.35] New Partners
- [1.36] Maintenance of Professional Records
- [1.37] Comparison Chart
- [1.38] Parity Under Qualified Plan Rules for Corporate and Noncorporate Employers and Remaining Distinctions
- Other Employee Benefit and Nontax Distinctions Between Corporate and Noncorporate Entities
- Employee Benefit Distinctions
- [1.39] Accident and health plans
- [1.40] Health insurance premiums
- [1.41] Dependent care assistance plans
- [1.42] Cafeteria plans
- [1.43] Employee business expenses
- [1.44] Nontax Benefits of Incorporation
- [1.45] Limited liability
- [1.46] Malpractice insurance protection
- [1.47] Vicarious liability of professional service providers
- Reasons To Terminate or Not Elect Corporate Existence
- [1.48] Qualified Retirement Plans
- [1.49] Additional Corporate Costs and Higher Tax Rates
- [1.50] Sale of Personal Service Business
- IV. Limited Partnerships
- In General
- [1.51] Uniform Limited Partnership Act (2001)
- [1.52] Formation: Certificate of Limited Partnership
- [1.53] Amending the Certificate of Limited Partnership
- [1.54] Statement of Termination
- [1.55] Execution of Certificates
- [1.56] Filing in Office of Secretary of State
- [1.57] Approval of Conversion into Another Form of Entity
- [1.58] Merger of Limited Partnership and Other Entities
- [1.59] Admission of Additional Limited Partners
- [1.60] Liability
- [1.61] Admission of Additional General Partners
- [1.62] Events of Withdrawal of Partner
- [1.63] Contributions
- [1.64] Sharing of Profits and Losses
- [1.65] Distributions
- [1.66] Assignment of Partnership Interest
- [1.67] Dissolution
- [1.68] Foreign Limited Partnerships
- [1.69] Direct Actions and Derivative Actions
- [1.70] Administrative Matters
- Miscellaneous
- [1.71] Name
- [1.72] Record-Keeping Requirements
- [1.73] Service of Process on Limited Partnership
- [1.74] Applicability of Uniform Limited Partnership Act (2001)
- Sale of Partnership Interests
- [1.75] Raising Capital: Securities Aspects
- [1.76] Definition of “Security”
- [1.77] Intrastate Offerings
- [1.78] Private Placement Offerings
- [1.79] Manner of Offering
- [1.80] Information Requirements
- [1.81] Limitations on Resale
- [1.82] Integration
- [1.83] Classification of Investors
- [1.84] Notification Requirements for Private Placement
- [1.85] Insignificant Deviations
- [1.86] State Securities Law Compliance
- Drafting Limited Partnership Agreement
- [1.87] Issues To Be Addressed
- [1.88] Provisions Commonly Used in Limited Partnership Agreements
- [1.89] Name of Partnership
- [1.90] Loans
- [1.91] Outside Activities
- [1.92] Liability of General Partner to Limited Partner: Indemnity
- [1.93] Capital Contributions
- [1.94] Management of Partnership Business
- [1.95] Transferability
- [1.96] Books of Account
- [1.97] Agent for Service of Process
- [1.98] Family Limited Partnerships
- [1.99] Formation
- [1.100] Creditor Protection
- [1.101] Income Tax Considerations
- Transfer Tax Considerations
- [1.102] Valuation Discounts
- [1.103] Restrictions on Valuation Discounts
- [1.104] Annual Exclusion Gifts
- [1.105] Economic Substance of Transaction
- [1.106] Appraisal of Assets
- V. [1.107] Income Tax Aspects of General and Limited Partnerships
- Basic Rules of Partnership Taxation
- [1.108] Definition of “Partnership” for Tax Purposes
- [1.109] Income Tax Returns
- [1.110] Partnership Accounting
- [1.111] Partnership Income and Partner’s Income
- [1.112] Partner’s Distributive Share
- [1.113] Partnership Assets
- [1.114] Basis of Partnership Assets
- [1.115] Basis of Partner’s Interest in Partnership
- Tax Considerations of Partnership Transactions
- [1.116] Contribution of Property to Partnership
- [1.117] Partnership Distributions
- [1.118] Recapture of Depreciation
- [1.119] Recapture of Investment Credit
- [1.120] Partnership Interest for Services
- [1.121] Contributions of Property Subject to Liabilities
- [1.122] Contributions of Installment Obligations
- [1.123] Guaranteed Payments
- Other Matters
- [1.124] Code §179 Election To Expense Certain Depreciable Assets
- [1.125] Syndication Expenses and Organization Fees
- [1.126] At-Risk Provisions
- [1.127] Prepaid Expenses
- [1.128] Exchange of Partnership Interests
- [1.129] Character of Gain or Loss
- [1.130] Disclosure of Reportable Transactions
- [1.131] Partnership of Corporations
- [1.132] Incorporating a Partnership
- Tax Considerations in Drafting Partnership Agreements
- [1.133] Profits Interest of Each Partner
- [1.134] Capital Interest of Each Partner
- [1.135] Tax Basis for Each Partner’s Interest in Partnership
- [1.136] Property To Be Contributed by Each Partner to Partnership
- [1.137] Controlled Partnerships
- [1.138] Purchase of Deceased or Retired Partner’s Interest in Partnership
- VI. Appendix
- Chapter 2 — Partnership Agreements
- I. [2.1] General Description of Partnerships and the Necessity of Written Partnership Agreements
- II. [2.2] Nonwaivable Provisions
- III. [2.10] Supplemental Principles of Law
- IV. [2.11] Income Tax Provisions
- Tax Provisions Regarding Non-Pro Rata Allocations of Tax Items
- [2.12] Substantial Economic Effect Requirement
- [2.13] Impact of Allocations That Do Not Have Substantial Economic Effect
- [2.14] Impact of Partnership Agreement on Allocations
- [2.15] Required Allocation Provisions To Satisfy Economic Effect Test
- [2.16] Capital Account Maintenance Rules
- [2.17] Liquidation of Interests
- [2.18] Liquidation of Interest in Accordance with Positive Capital Accounts
- Obligation To Restore Deficit Capital Account
- [2.19] General rule
- [2.20] Exception — qualified income offset
- [2.21] Property Contributions
- [2.22] Valuation of Property Contributions
- [2.23] Built-In Gain or Loss Must Be Allocated to the Contributing Partner
- [2.24] Allocation of Deductions in Contributed Property
- [2.25] Partnership Provisions Permitting Revaluations of Partnership Property
- [2.26] Partnership with Depreciable Property Subject to Nonrecourse Financing — Minimum Gain Charge-Back Requirement
- [2.27] Tax Matters Partner and Partnership Representative
- [2.28] Goodwill in a Service Partnership
- [2.29] “Salaries” to Partners of a Service Partnership
- [2.30] Illinois Personal Property Tax Replacement Tax
- V. [2.31] Default Rules
- [2.32] Definitions
- [2.33] Knowledge and Notice
- [2.34] Choice of Law
- [2.35] Partnership Property
- [2.36] Partner Authority
- [2.37] Capital Accounts
- [2.38] Profits and Losses
- [2.39] Payments and Advances to Partners
- [2.40] Management Rights
- [2.41] Use of Partnership Property by Partners
- [2.42] Compensation for Services
- [2.43] Distributions in Kind
- [2.44] Rights to Information
- [2.45] Duties of Care
- [2.46] Restrictions on Competition
- [2.47] Actions by the Partnership and Partners
- [2.48] Continuation of Partnership Beyond Definite Term or Particular Undertaking
- [2.49] Transferable Interest in Partnership
- [2.50] Partner’s Dissociation
- [2.51] Judicial Expulsion
- [2.52] Insolvency
- [2.53] Partner’s Power To Dissociate — Wrongful Dissociation
- [2.54] Effect of Partner’s Dissociation
- [2.55] Partner’s Dissociation When Business Not Wound Up
- [2.56] Requirement To Purchase Dissociated Partner’s Interest
- [2.57] Identity of Purchaser
- [2.58] Manner of Payment
- [2.59] Filing of Statement of Dissociation
- [2.60] Use of Partner’s Name in Firm Name
- [2.61] Winding Up Partnership Business
- [2.62] Events of Dissolution
- [2.63] Continuation of the Partnership After Dissolution
- [2.64] Persons Authorized To Wind Up the Partnership Business
- [2.65] Power To Bind Firm After Dissolution
- [2.66] Filing a Statement of Dissolution
- [2.67] Partners’ Liability to Other Partners upon Dissolution
- [2.68] Settlement of Accounts and Contributions Among Partners
- VI. [2.69] Other Provisions To Consider
- VII. [2.70] IRS Circular 230 Notice
- VIII. Appendix
- Chapter 3 — Statutory Dissociation and Winding Up
- Chapter 4 — Limited Liability Partnerships
- I. Introduction
- II. Formation of a Limited Liability Partnership
- [4.3] General Partnership Must Register as a Limited Liability Partnership
- [4.4] Name of the Limited Liability Partnership
- [4.5] Applying for Registration as a Limited Liability Partnership
- [4.6] Form of the Statement of Qualification
- [4.7] Content of the Statement of Qualification
- [4.8] Execution of the Statement of Qualification
- [4.9] Filing the Statement of Qualification
- [4.10] Fees for Filing the Statement of Qualification
- [4.11] Amendments and Corrections to the Statement of Qualification
- III. Operation and Termination
- IV. [4.15] Partnership Income Tax Treatment
- V. Scope and Effect of Liability Limitations
- VI. Litigation Concerns
- VII. [4.22] Limited Liability Partnerships in Bankruptcy
- VIII. Limited Liability Partnership Usage
- IX. [4.26] Foreign Limited Liability Partnerships
- [4.27] Name of the Foreign Limited Liability Partnership
- [4.28] Form of the Statement of Foreign Qualification
- [4.29] Execution and Filing of the Statement of Foreign Qualification
- [4.30] Fees for the Registration Application
- [4.31] Amendments and Corrections to the Registration
- [4.32] Limited Liability Partnerships in Other Jurisdictions
- X. [4.33] Illinois Limited Liability Partnership Status in Foreign Jurisdictions
- XI. Issues for Drafting Limited Liability Partnership Agreements
- XII. [4.37] Conclusion
- Chapter 5 — Family Limited Partnerships
- I. Introduction
- [5.1] Scope of Chapter
- [5.2] Family Limited Partnerships in General
- [5.3] Estate Planning Purposes
- [5.4] Attacks by IRS on Family Limited Partnerships
- [5.5] Code §§2703 and 2704 — Disregarding Restrictions on Right To Sell Property and Liquidate
- [5.6] Application of Step Transaction
- [5.7] Code §2036(a) — Estate Tax Inclusion of Partnership Interests due to Retained Interests of Decedent
- II. [5.8] Formation
- III. [5.16] Operation of Partnership
- IV. Transfers of Partnership Interest
- V. [5.34] Liquidation and Dissolution
- VI. [5.37] Comparison to Limited Liability Company and Other Forms of Family Enterprises
- VII. [5.38] Future Use of Family Limited Partnerships in Estate Planning
Authors
- James W. Dodge
James W. Dodge
James W. Dodge is a Professor at Purdue Global Law School, where he serves as the subject-matter expert for contracts. His courses cover estates, wills, and trusts; real property; and corporations and business organizations. He is a member of the Academy of Legal Studies in Business and a former member of the Uniform Laws Commission (2011 – 2022). Dodge received his B.S. from the University of Illinois and his J.D. from Southern Illinois University School of Law.
- Kirk A. Hoopingarner
Kirk A. Hoopingarner
Kirk A. Hoopingarner is a Partner at Quarles & Brady LLP, in Chicago, where he focuses his practice on trusts and estates and tax-exempt organizations. Hoopingarner is a Fellow of the American College of Trust and Estate Counsel, a member of the Chicago Estate Planning Council, and a member of the editorial board of Planned Giving Today. Hoopingarner received his B.A. from Hope College and his J.D. cum laude from the University of Michigan Law School.
- John B. Waters
John B. Waters
John B. Waters is Of Counsel to Roetzel & Andress, LPA, in Chicago, where he practices in the areas of corporate and tax law. He is a member of the American Bar Association Section of Taxation and the Illinois State Bar Association Federal Taxation Section. He received his B.S. from Iowa State University; his M.N.E. from North Carolina State University; his J.D. from the University of Idaho College of Law, where he was Symposium Editor of the Law Review; and his LL.M. in taxation from DePaul University.
Business Partnerships (ARCHIVED 2018 EDITION)
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