Capital account records the initial equity contribution of partners in the partnership assets. Its credit balance consists of cash contributions made to partnership and income and gain allocations to each partner. Debit balance represents cash distributed to partners and loss if any allocated. Refer to exhibit 18-12 to see how a capital account is maintained.
Cash distributions are made to partners on the basis and in ratio of their capital account balances. How much cash is to be distributed is to be determined after taking into account the initial equity contribution of partners, cash flow allocations from property during its operating years, income or loss allocation from operation and sale of property.
The capital account balances change every year due to income allocations. The balances increase every year due to allocations but then is again reduced by cash distributions. In the final year when the property is sold off, the gain realized is allocated to capital accounts which then increase the balances again. At that time, the balances show how much of the equity invested by partners is left because the final cash distributions are made on this basis.
Limited partnership ownership form
Limited partnership ownership forms are type of organization in which there are few or very less partners operate the real estate firm. The owner the firm are very less who operate the company. It is like a general partnership firm with at least one limited partner.
Limited partnership is legal entity regulated by in government. All the partners in such partnership organization are specialized in their fields and make decision according to their specialized knowledge.
Under the Limited partnership ownership each partner has equal roles and responsibility. Since each partner has the management right so the cash flow in term of salary, incentive and comes from the gain of the business. The profit in such type of organization is not taxes under any tax rule.
Tax is deducted from the partner's share of profit. Whatever the income the organization earns, total earning is distributed among the partners and partners have to pay tax individually.
Limited partners however have limited liability as compared to general partners. Thus general partners are exposed to more economic risk and are liable personally for the loss of company. Limited partners have to disclose their status before dealing with other parties.
General partners also get different fees for the partnership structuring, or to purchase the property which is on the behalf of partnership, or to manage the partnership. It also has got the division of cash flow from the operations or from the selling of properties.
Investor is concerned with the ability of general partner's ability in order to manage the partnership which includes the purchasing and the development of the property, the management of property etc. The investor is also concerned about that the general partner does act as per their best interest of limited partner.
The syndicator also offer the limited partner a more ratio for the losses of tax and a higher ratio for the cash flow and it is available for the distribution.
The general partners are also linked with the unlimited personal liability of debts for the organisation business. The general partners in the limited partnership are together and jointly responsible for the business debts.