Document Type

Article

Publication Date

2015

Publication Title

Florida State University Business Review

Publication Title (Abbreviation)

Fla. St. U. Bus. Rev.

Volume

14

Issue

1

First Page

1

Last Page

29

Abstract

Balance sheets for limited liability companies and for partnerships differ from corporate balance sheets in one important respect. Accounting for these alternative forms traditionally includes a separate equity account, or “capital account,” for each owner. Accounting practice and caselaw suggest that, at least as a default rule or norm, these accounts guide distributions on liquidation or buyout, and, if negative, may also reflect debts to the firm. Indeed, the statutory default rule of partnership law in most states requires that individual capital accounts be maintained and given economic significance on liquidation or buyout. Although the statutory law of LLCs does not contain these default rules, partnership law provides analogy. Furthermore, the federal income tax rules that apply both to partnerships and to most multi-member LLCs closely examine the maintenance and significance of capital accounts to determine the validity of special allocations of tax benefits. Finally, capital accounts analysis also sharpens the understanding of the economic arrangement of the owners, particularly with respect to how and to what extent they have agreed to share different items of loss.

Rights

© 2015 Donald J. Weidner

Comments

First published in Florida State University Business Review.

Faculty Biography

http://law.fsu.edu/our-faculty/deans/weidner

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