Time to Dust Off That Partnership or Operating Agreement
While you are reviewing your partnership agreement or limited liability company agreement to ascertain the potential tax impact the proposed carried interest legislation may have on you, it may also be a good time to review the agreement to make certain it still meets your business needs. For example, does the agreement address what happens in the event of the death of one of the partners/members? If it does not, provisions could be added to require the surviving spouse who inherited the interest of the deceased partner/member to sell his or her interest to the other partners/members. The agreement should also be reviewed to determine if any restrictions on the transfer of ownership interests should be added or removed. For example, provisions may be added requiring partners/members to offer to sell their ownership interests to the other partners/members before selling to a third-party or that transfers of ownership interests are limited to family members of the existing partners/members. If the agreement provides that certain events will cause the partnership or limited liability company to automatically terminate (e.g., the death, bankruptcy or withdrawal of a partner or member, unless the remaining partners or members agree to continue the business within a set time period), thought should be given to whether some or all of the automatic termination triggers are still appropriate given the current business operations.