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I have a client, Partnership ABCD. Partner D has a deficit of $5,000. The other three...

I have a client, Partnership ABCD. Partner D has a deficit of $5,000. The other three partners have given him/her time to make up the deficit in the year. In the year, the Partnership losses continue with a loss of $20,000. Partner D has now a $10,000 deficit. Can A partnership continue for multiple years if one or more partners have deficit balances?

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Answer #1

Deficit of Partner's capital is a situation when partner’s share of the loss is greater than the balance of his or her capital account. If that be the case,the partner must make over the deficit by paying cash into the partnership. In this situation, a deficit is a debit balance in a partner’s capital account. This could occur from liquidation losses, losses from previous periods, or withdrawals before liquidation.

Deficit balance of one or more partner's account may not be leads to liquidation of the partnership until unless there is a clause to do same in the agreement. Such deficit can be restored in future without going for liquidation.

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