Question

The ABCZ partnership was formed for the purpose of developing tracts of land. A, B, and C are individual limited partners and Z, a corporation, is the sole general partner. The corporation has a 20 percent interest in the part- nership and has substantial assets other than its partnership interest. The partnership agreement provides that limited partners can transfer in- come interests only with the consent of the general partner and further pro- vides that the limited partners can freely transfer their capital interests only after first offering such interests to other members of the partnership at fair market value. The partnership agreement also provides that the partnership will continue for 30 years, notwithstanding the death, insanity, bankruptcy retirement, resignation, or expulsion of any member of the partnership. If the 30-year provision is held to be ineffective, the partners agree that if one of the above events occurs to the general partner they will continue the part- nership with a newly elected general partner. a. How should the organization be classified for tax purposes? Assume alternatively that Z corporation has a 15 percent interest in the organization and has no assets other than its interest in the ABCZ part- nership. b.

Answer 1

The question is being answered as per Indian Tax Laws and other applicable laws in India.

a. The ABCZ corporation has 3 partners with limited liability and 1 partner i.e. Z with unlimited liability. Hence this is not a limited liability partnership and as such shall be treated as a general partnership under the Indian Income Tax laws.

b. Even though the the share of Z (corporation) has been reduced from 20% to 15%, the nature is of partnership only. The structure of organisation/business does not change

c. Even if Z (corporation) were an individual my answer will not change, because in India a partnership can be between individuals or between individuals and corporation.

d. A & B each own 30% of Z (Corporation). The nature of business will remain that of partnership only. However, A and B shall inform the Board of Z (corporation) about their individual interest in the partnership. The disclosure is required under section 188 of the Companies Act 2013.