Greg MD Blog

Partnership Formation

1. Does Indiana follow the UPA or RUPA? Are we in the minority or majority in favor of that decision?

Indiana adheres to the Uniform Partnership Act of 1914 (UPA). It is one of the minority states that have followed the UPA for over one hundred years since the National Conference of Commission showed this model statute. (Bouchoux, 2022)

2. Which of the three partnership formations you learned about during this module should the group consider?

When setting up a partnership, it is crucial for the group to thoughtfully evaluate which of the three types of partnerships—general, limited, or limited liability—best aligns with their goals. A General Partnership is often the ideal choice for partners aiming to start a business together. There are key factors to consider with this type of partnership, which the partners must consider during the formation process.

A General Partnership is an excellent choice for businesses or corporations beginning with two or more partners or shareholders. This structure allows multiple partners to share expenses, profits, and losses using their skills and experiences. Furthermore, a General Partnership offers tax benefits by treating the business as a single entity for tax purposes. If partners decide to form a General Partnership, it is essential to have a formal written agreement. This agreement should clearly outline each partner’s roles, responsibilities, financial contributions, and day-to-day operations. It is also vital that all partners show good character and integrity.

One notable disadvantage of a General Partnership is the issue of unlimited liability. If the partnership or LLP is sued collectively, the partner with the most significant financial resources and assets may be liable, potentially resulting in substantial claims or losses. Therefore, partners must consider this factor when selecting their partnership structure.

3. how would profits, assets, and liabilities be divided under your chosen formation? Compare this with the formations you did not select.

The profits generated by a general partnership depend on the number of partners involved and the agreements set up among them. The first contributions, including inventory purchases, office buildings, and available liquid cash, will decide the company assets. At the end of each fiscal year, the company’s net profit is calculated by subtracting liabilities from assets, resulting in final profit figures. Schedule K-1 provided for tax reporting purposes. The distribution of profits, assets, and liabilities among partners may vary based on each partner’s share and contribution, either divided equally or distributed according to the agreements set forth during the partnership’s formation for year-end results.

Depending on its first formation, a limited partnership (LP) is well-suited for sole proprietors or general partners. When owned by a single individual, that owner is fully liable for all debts and keeps all profits at the end of the year. This owner is also responsible for the daily operations of the business. In cases where the LP is formed with a general limited partnership, all general partners must prepare and file a certificate with the secretary of state in the business’s district.

However, the absence of a formal structure for company governance and role delineation can lead to potential issues. The distribution of assets, mutual liability, and profits is contingent upon the agreement set up by the partners. The partnership agreement is tailored to meet each partner’s financial obligations, taxation needs, and commitment to the business formation.

A Limited Liability Partnership (LLP) is commonly adopted by professionals such as doctors, lawyers, and accountants. While most startups do not typically favor this structure, professionals often use it to safeguard against potential legal liabilities. An LLP protects each partner from being personally liable for negligence, torts, or other wrongful acts committed by the different partners.

The comparison between the three business formations hinges on varied factors, mainly whether an individual or multiple people are interested in starting a business. The owner will decide the direction they believe is most suitable for their company, whether as a sole proprietor or in partnership with others. For a startup, opting for a general partnership is often the most favorable choice, especially given projections for future growth and the potential for collaboration among multiple partners to advance the company’s prospects.

• Review Largo Realty, Inc. v. Purcell, 928 N.E.2d 999 (Mass. App. Ct. 2010). If Abe made a mistake on Aunt Edna’s Pies Tax return, could Jana be held liable for the IRS penalties and fees imposed on Aunt Edna’s Pies? Why? Be descriptive. A “yes” or “no” answer will not suffice.

The assertions of overbilling and IRS penalties and fees raise prominent competency issues with the accounting firm. One critical aspect is the challenge of proving a tort claim against the accounting firm as a collective entity. The validity of the case hinges on the agreement between Largo Realty, Inc. and Purcell. What specific evidence was lacking to prove intent for the tort claims against the other partners in the accounting firm? The court decided that the Plaintiff did not prove intent concerning tort claims against the other partners in the accounting firm. While Abe, Jana, and Chris work as partners, each partner is accountable for the accuracy of their work with clients.

How did the court’s ruling impact Largo Realty, Inc.’s overall relationship with the accounting firm? The agreement is based on a Limited Liability Partnership (LLP), protecting partners from personal liability, including coverage for tort liability related to the partnership and its employees (Largo Realty, Inc. v. Purcell, 2010). Chris could face penalties tied to the IRS if specific claims of negligence or misrepresentation in public accountancy arise regarding Edna’s Pie tax return, as noted in (Rothschild Wishek + Sands LLP., 2025). The CIMA Code of Ethics applies to all members and candidates, emphasizing integrity, objectivity, professional competence, due care, confidentiality, and public behavior (AICPA & CIMA, 2020). Although the client had a valid claim, they did not include all necessary partners or partners as defendants in the lawsuit, leading to the higher court upholding the lower court’s judgment.  

What steps can the accounting firm take to mitigate the potential penalties from the IRS on Edna’s Pie tax return? A system where a staff member or another partner can review each other’s work as an added measure of accuracy and professional service will give the clients professional competence in the firm’s work.

Course assignment for Business Association

Written by: Greg MD