When a partnership is insolvent and a partner has a deficit capital balance, that partner islegally required to: contribute cash to the partnership.
What happens when a partner's capital balance is negative?
- A capital account deficit in your company indicates that you are taking more money out of the account than you are putting in. You would have a capital account deficit of $2,000, for instance, if you deposited $10,000 to your capital account during the fiscal quarter but used $12,000 from it.
- If a partner's capital account is in the negative, they must pay the partnership the negative sum.
- Such a capital shortfall when one partner is bankrupt is a loss to the remaining partners who are solvent.
- A partner is legally compelled to: provide funds to the partnership when a partnership becomes bankrupt and one of the partners has a deficit capital balance.
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