Deficits in a limited partnership
November 27, 2018 | 25,00 EUR | answered by Steuerberater Knut Christiansen
Assuming the limited partner of a limited partnership takes private withdrawals from the partnership throughout the year and deposits them into a private savings account (without spending them), while leaving the profits in the partnership. At the end of the year, the balance sheet shows a "XXX EUR uncovered deficit not covered by contributions" and an equal amount of "XXX EUR liability to the limited partner". The bank now considers the partnership to be in a loss and declares it as credit unworthy, questioning how the partnership can operate economically in the future. However, the partnership has no debts other than those owed to the limited partner and is also making significant profits. How is this accounting loss occurring? Is the explanation that the private withdrawals need to be reclassified as either profit withdrawals or as a receivable from the limited partner in order to eliminate the accounting loss? Or how can I best explain this to the bank to demonstrate my creditworthiness? Private withdrawals only reduce equity, not profits. Could there be a misunderstanding on either my or the bank's part?
Dear questioner,
Thank you for your inquiry, to which I would like to respond as follows:
In principle, transferring funds to a private savings account leads to a (profit) withdrawal. This reduces the equity of the limited partnership (KG), which actually increases through profits. If more is withdrawn than profit is generated, over time an "uncovered deficit not covered by equity" is created. In terms of accounting, the KG would have more liabilities than assets in this case. If you still have the profit claim of the limited partner as a liability against the limited partner, the booking of the private withdrawal to balance the liabilities account may still be missing. However, the equity situation of the KG remains unchanged. From a banking perspective, this is certainly not advantageous. Therefore, one way to improve the situation is to increase equity again through private contributions from the limited partner or to withdraw less in the medium term than profits are generated.
I hope this answers your question, otherwise feel free to ask a follow-up question at no cost.
Kind regards,
Knut Christiansen
Tax advisor
