Susan and Sarah Form a Partnership by Each Making Contributions

question 94

Essay

Susan and Sarah form a partnership by each making contributions of $30,000 cash to partnership capital.The partnership purchases an asset for $200,000,using the cash and financing the rest with a $140,000 recourse note.Susan is allocated 75% of partnership profits and losses until the date when the total partnership profits exceed total partnership losses.After that date,the profits and losses are shared equally between the two partners.The partners expect the partnership to have losses for the first three years of operations and profits thereafter.How will the recourse debt be shared between the partners for basis purposes immediately after the property is acquired?

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Definitions:

Informal Contract

A contract that requires no formalities. Also called simple contract.

Formal Contract

A contract that must have a special form or must be created in a specific manner.

Simple Contract

A contract that is not a formal contract. Also called an informal contract.

Third-Party Beneficiary

A third-party beneficiary is a person who, although not a party to the contract, stands to benefit from the contract's execution or has rights that can be enforced under the contract.