Understanding the Professional Partnership

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As we mentioned in the previous article, there are 2 types of partnerships. In this article we will discuss some important factors of professional partnership.
Professional partnership operates in a similar fashion to their general or limited counterparts. The main difference is how the partnership interest and the asset evaluated at death or withdrawal from practice. In essence, part of the goodwill was generated by the deceased or withdrawing partner, but the remaining growth was from the contributions of the remaining partners.Therefore the purchase price of the partnership interest depends on the following:
1. Tangible assets.
2. Share of accounts receivable generated by the deceased partner.
3. Value of work in progress.
4. Goodwill.

There are many options available to fund a buy-out. A properly funded life insurance policy in the buy-sell agreement will go a long way to guarantee the desired result because of the following:
1. A lump sum payment for the full value.
2. Continued payments from accounts receivable and work in progress
3. An agreed upon percentage of the firm’s income for a certain number of years.

The advantage of partnership buy-sell agreement will guarantee the proper purchase price of the partnership interest for the decreased partner's heirs and benefits all members of partnership, for continuing of partnership to do its business without interruption.

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