Question

Betty and Allan each own 25% of partnership BAB. On October 15, 2016, Betty sells her interest to Bob, who is a 50% partner. On October 16, 2017, Alan sells his interest to Bob. When does the partnership terminate? a. October 15, 2016 b. October 16, 2017 c. January 31, 2017 d. The partnership does not terminate

Answer 1

A partnership is said to be terminated when there is sale or exchange of 50% or more of the total interest in partnership capital & profits within a 12 month period.

In the given case Betty sold her interest(25%) to Bob on 15/10/2016 whereas Alan sold his interest(25%) to Bob on 16/10/2017 which is after 12 months from the date of transfer of interest by Betty.Hence we can say that there is no sale/exchange of partnership capital & profits of 50% or more within 12 months.

Based on the above facts we can conclude that there is no termination of partnership.However there must be atleast 2 persons to treat an entity as a partnership firm.In this case after Alan transfers his share of interest to Bob,Bob becomes the sole proprietor of the business.Hence the partnership terminates on 16^th october 2017.

Ans: b