Currently I'm working on a model that where the capital account of a LP has been reduced into the negatives due to initial losses. At what point can the LP start receiving distributions? Does the profit share have to remain in the company until the capital account is over $0?
Eg: Starting Capital Account: ($40,000,000) Share of Contribution: $500,000 (First quarter of profitability) Share of Distribution: $500,000 Ending Capital Account: ($40,000,000)
Do we have to wait until the contributions gets the capital account back up to $0, before taking distributions?
Many thanks
This answer won't help you...but it is the answer...it all depends on the terms within the JV agreement/operating agreement. Without that reference point...any other response would just be speculation.
Completely agree. don't read any future posts about rules of thumb bc it will get you in trouble. Read jv agreement and post language in here that you think is pertinent if you don't understand
This is the answer "it depends"
The operating agreement will probably be very clear about what should happen in this instance.
Thank you for the clarification, that helps.
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