A partnership agreement, a court, and the IRS do not always use the same word for the same thing, and a term that sounds informal, like a shotgun clause, usually has a precise legal effect behind it.
This page collects the terms a business partner runs into most, from forming the business to leaving it, each defined in two or three plain sentences with the statute or tax rule that actually defines it, where one does. Type into the search box below to find a word fast; the list runs alphabetically otherwise.
The glossary, A to Z
| Term | What it means | Read more |
|---|---|---|
| 83(b) election | A filing with the IRS, due within 30 days of receiving a partnership or LLC interest that is subject to vesting, electing to be taxed on its value at grant instead of as each tranche vests (IRC §83(b)). There is no extension if the 30 days pass. | How to File an 83(b) Election |
| Alliance | A looser tie than a joint venture, such as co-marketing or shared distribution, that usually stops short of jointly owning a business. Because it does not meet the co-ownership test in UPA (1997) §202(a), it is not treated as a partnership. | Partnership Health Metrics Explained |
| Arbitration | A neutral arbitrator hears both sides and issues a binding decision, unlike mediation. A court can set the award aside only on narrow grounds such as fraud, corruption, or the arbitrator exceeding their authority (9 U.S.C. §10). | Mediation vs Arbitration for a Business Partner Dispute |
| Buy-sell agreement | A clause or standalone contract fixing what happens to a partner's share on death, disability, or another agreed trigger: who buys it, at what price, and how the purchase is funded. Most buy-sell agreements replace the default buyout formula in UPA (1997) §701(b) with their own. | Buy-Sell Agreements for Business Partners |
| Buyout price | What a dissociated partner is owed when no agreement sets a different number: the amount they would receive under UPA (1997) §807(b) if the partnership's assets were sold, on the date of dissociation, at the greater of liquidation value or going concern value (§701(b)), plus interest until it is paid. | How to Buy Out a Business Partner |
| Capital account | A partner's running ledger, credited for what they contribute and their share of profit and charged for distributions and their share of loss (UPA (1997) §401(a)). It is what decides what each partner is owed, or owes, when the books are settled. | How Business Partners Pay Themselves |
| Capital interest | An ownership stake given for cash, property, or past services already performed. Unlike a profits interest, it is taxable to the recipient at grant under the ordinary rules for property received for services. | Sweat Equity Partnership When One Partner Brings the Money |
| Charging order | A judgment creditor of one partner, not the partnership, can ask a court to charge that partner's transferable interest so the creditor collects the distributions due to them (UPA (1997) §504(a)). It is the exclusive remedy against a partner's own stake and does not reach the partnership's own assets, which is the opposite problem from being liable for the partnership's debts. | Are You Liable for Your Business Partner's Debts |
| Cliff | The point, usually the first anniversary of a vesting schedule, before which nothing has vested at all. A founder who leaves a week before the cliff keeps none of the grant that was tied to it. | Co-Founder Equity Split by the Numbers and How to Agree on Yours |
| Cross-purchase agreement | A form of buy-sell agreement where the remaining partners buy the departing partner's share directly, rather than the business redeeming it. It needs one life insurance policy per pair of partners to fund a death buyout, which gets expensive past three or four owners. | Buy-Sell Agreements for Business Partners |
| Deadlock | A dispute neither side can outvote because ownership, and so voting power, is split evenly. Left unaddressed, a deadlocked partner's only recourse is often a court, on the ground that it is no longer reasonably practicable to carry on the business (UPA (1997) §801(5)). | Deadlock Clauses for a 50/50 Partnership |
| Dissociation | The event that ends someone's status as a partner, whether by their own choice, death, bankruptcy, or expulsion (UPA (1997) §601). It does not necessarily end the partnership itself; whether it does is a separate question under §801. | How to Leave a Business Partnership |
| Dissolution | The event that starts winding up a partnership's business. UPA (1997) §801 lists the only events that trigger it: an at-will partner's notice of withdrawal, an agreed event, illegality, or a judicial determination. | How to Dissolve a Business Partnership Step by Step |
| Distributive share | Each partner's slice of the partnership's profit or loss for the year, reported on their K-1 and taxed to them whether or not any cash was actually paid out. Absent an agreement, UPA (1997) §401(b) makes every partner's share equal. | How Business Partners Pay Themselves |
| Draw | Cash a partner takes out of the business against their distributive share during the year. It is not a guaranteed payment and is not itself taxed as separate income; it simply reduces what the partner would otherwise receive at settlement. | How Business Partners Pay Themselves |
| Drag-along right | Lets a majority that agrees to sell the business force a minority holdout to sell on the same terms. It matters most to a buyer, who usually will not close a deal that leaves a partner still standing outside it. | Writing a Partnership Exit Clause Before You Sign |
| EIN | The federal tax ID the IRS issues to a partnership or multi-member LLC, needed before it can open a bank account, hire anyone, or file its first Form 1065. | How to Start a Business Partnership |
| Entity redemption | A form of buy-sell agreement where the business itself buys back a departing or deceased partner's share, rather than the other partners buying it personally. One life insurance policy, owned by the business, covers every partner, simpler than a cross-purchase agreement once there are more than two or three owners. | Buy-Sell Agreements for Business Partners |
| Expulsion | Forcing a partner out without their consent. Without an agreement that allows it, the only paths are a unanimous vote of the other partners for specific statutory causes, or a court order (UPA (1997) §601(4) and (5)). | How to Remove a Business Partner From a Partnership or LLC |
| Fair market value | What a willing buyer would pay a willing seller, neither under compulsion, both reasonably informed. For a minority or hard-to-sell interest, fair market value is usually reduced by a marketability discount, a minority discount, or both. | How to Value a Business Partner's Share for a Buyout |
| Fair value | A standard some states use instead of fair market value for a court-ordered buyout, often without the marketability or minority discounts that would otherwise shrink the number. Which standard applies is set by the state's own case law or statute, not by UPA (1997) itself. | How to Value a Business Partner's Share for a Buyout |
| Fiduciary duty of care | Limited, under UPA (1997) §404(c), to refraining from grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law. An honest mistake in business judgment does not breach it. | Fiduciary Duties Business Partners Owe Each Other |
| Fiduciary duty of loyalty | The duty to account for and hold as trustee any profit a partner takes from partnership business or property, to avoid dealing with the partnership on behalf of an adverse interest, and to not compete with it before dissolution (UPA (1997) §404(b)). | Fiduciary Duties Business Partners Owe Each Other |
| General partnership | The default structure the moment two or more people associate to carry on a business for profit as co-owners, whether or not they mean to form one and whether or not anything is filed anywhere (UPA (1997) §202(a)). | How to Start a Business Partnership |
| Guaranteed payment | A payment to a partner for services or for the use of capital, fixed without regard to whether the partnership made a profit (IRC §707(c)). It is taxed to the partner as ordinary income even in a loss year, and it does not qualify for the Section 199A deduction. | How Business Partners Pay Themselves |
| Joint venture | Two or more parties pooling resources for a single project or limited purpose rather than an ongoing business. Courts and the IRS can still treat it as a partnership if it meets the co-ownership test in UPA (1997) §202(a), whatever the parties call it. | What a Joint Venture Agreement Needs to Cover |
| Judicial dissolution | A court-ordered end to the partnership on a partner's application, where the partnership's purpose is likely to be unreasonably frustrated, a partner's conduct makes the business impracticable to continue, or it is otherwise not reasonably practicable to carry on (UPA (1997) §801(5)). | Judicial Dissolution of an LLC by State and the Buyout That Can Stop It |
| K-1 (Schedule K-1) | The form a partnership sends each partner reporting their distributive share of the year's income, deductions, and credits for that partner's own tax return. It is issued whether or not the partner received any cash. | How Business Partners Pay Themselves |
| LLLP | A limited partnership that has also elected LLP status, so its general partners get the same liability shield a limited partner already has. Not every state recognizes the form, so check the state before relying on it. | Partnership and LLC Laws by State and the Rules They Fill In |
| LLP | Once a partnership registers as an LLP, an obligation it incurs is solely the partnership's; a partner is not personally liable for it merely by being a partner (UPA (1997) §306(c)). Some states restrict LLP status to licensed professions. | LLC Fees by State With LLP and Partnership Filing Costs |
| LP (limited partnership) | A structure with at least one general partner, who manages the business and is personally liable, and one or more limited partners, who are not liable beyond their investment as long as they stay out of control. The line between a limited partner's allowed involvement and control that forfeits the shield is drawn by each state's own limited partnership act. | General Partnership vs LLC for Two Owners |
| Marketability discount | A reduction applied to a private, hard-to-sell interest's value because there is no ready market to sell it into, unlike a share of a public company. | How to Value a Business Partner's Share for a Buyout |
| Mediation | A neutral third party helps the partners negotiate their own resolution rather than deciding it for them. Nothing is binding unless the partners actually agree and sign something. | Mediation vs Arbitration for a Business Partner Dispute |
| Minority discount | A reduction applied to a stake that cannot control the business, reflecting that a minority owner cannot force a sale, a distribution, or a change in direction. | How to Value a Business Partner's Share for a Buyout |
| Non-compete | A clause restricting a departed partner from competing with the business for a stated time and area after they leave. Enforceability swings sharply by state: some bar them for most workers while still allowing one tied to a business sale, and a few bar nearly all of them. | Non-Compete Laws by State for Business Owners and Partners |
| Operating agreement | An LLC's equivalent of a partnership agreement. Where it is silent, state LLC law fills the gap, usually less generously to a departing member than a written agreement would be. | What to Include in a Partnership Agreement |
| Oppression | A ground for judicial dissolution, in states that recognize it, when the people in control defeat a minority owner's reasonable expectations even without breaking any specific rule. RUPA itself does not use the word; it relies instead on the "not reasonably practicable" standard in UPA (1997) §801(5). | Judicial Dissolution of an LLC by State and the Buyout That Can Stop It |
| Partnership agreement | The partners' own contract governing their relations with each other and with the partnership. UPA (1997) §103(a) only fills in what the agreement leaves silent; a handful of its rules, listed in §103(b), cannot be waived at all. | What to Include in a Partnership Agreement |
| Partnership at will | A partnership with no fixed term or undertaking, which can be dissolved at any time once a partner gives notice of an express will to withdraw (UPA (1997) §801(1)). Most partnerships, including ones formed by accident, are this kind unless the agreement sets a term. | How to Start a Business Partnership |
| Profits interest | An interest entitling the holder only to a share of future profit and appreciation, not a share of what the business is worth today. IRS guidance generally treats one granted for services as not taxable at the time it is granted, unlike a capital interest. | Sweat Equity Partnership When One Partner Brings the Money |
| QBI deduction | The deduction, up to 20% of qualified business income, that a partner may claim on pass-through income from the partnership under IRC §199A. A guaranteed payment is specifically excluded from the income the deduction is calculated on. | How Business Partners Pay Themselves |
| Right of first refusal | Requires a partner who wants to sell their interest to offer it to the others first, on the same terms a third party offered. A transfer made in violation of a restriction the agreement sets is ineffective against anyone who had notice of it (UPA (1997) §503(f)). | Writing a Partnership Exit Clause Before You Sign |
| RULLCA | The Revised Uniform Limited Liability Company Act, the model law some states use for LLCs. It plays the same role for an LLC's operating agreement that RUPA plays for a partnership agreement: filling whatever the members left unaddressed. | Partnership and LLC Laws by State and the Rules They Fill In |
| RUPA | The common name for the Uniform Partnership Act (1997), the model law most states have adopted, with their own amendments, to govern general partnerships. Its rules apply only where the partners' own agreement is silent (UPA (1997) §103(a)). | Partnership and LLC Laws by State and the Rules They Fill In |
| Seller note | A promissory note the buyer gives a departing partner instead of paying the full buyout price in cash, typically secured by the business and carrying interest at or above the IRS's applicable federal rate. | How to Finance a Partner Buyout |
| Shotgun clause | Either partner may name a price for the whole business; the other partner must then either buy at that price or sell at it. It favors whichever partner has the cash to actually make the purchase, worth remembering before agreeing to one. | Deadlock Clauses for a 50/50 Partnership |
| Special allocation | An allocation of income or loss to the partners that departs from their overall profit and loss sharing ratio. To be respected for tax purposes it must have substantial economic effect under IRC §704(b), not just be written down in the agreement. | How Business Partners Pay Themselves |
| Statement of partnership authority | A filing naming which partners can bind the partnership to what, and for how much. A good-faith third party who checks it and relies on it is protected even if the actual partnership agreement says something different (UPA (1997) §303(d)). | What to Include in a Partnership Agreement |
| Sweat equity | Ownership given in exchange for work rather than cash. It is not a defined legal term, so what it actually means, and how it is taxed, depends on whether the interest granted is a capital interest or a profits interest. | Sweat Equity Partnership When One Partner Brings the Money |
| Tag-along right | Lets a minority partner join a sale a majority partner is making, selling their own share on the same terms rather than being left behind as a minority owner of whoever bought in. | Writing a Partnership Exit Clause Before You Sign |
| Transferee | Someone who receives a partner's transferable interest, meaning the right to profits, losses, and distributions, without becoming a partner themselves (UPA (1997) §502). They cannot vote, inspect the books, or take part in management, only collect what the transferring partner would have received (§503). | What Happens When a Business Partner Dies |
| Vesting | Ownership that becomes irrevocable over time rather than all at once, usually on a schedule with a cliff at the start. A founder who leaves before a tranche vests forfeits it, which is the whole point of vesting. | Co-Founder Equity Split by the Numbers and How to Agree on Yours |
| Winding up | What a partnership does after dissolution and nothing else: finish pending business, settle debts, and distribute what is left under UPA (1997) §807. A partner who has not wrongfully dissociated may take part (§803(a)). | How to Dissolve a Business Partnership Step by Step |
| Wrongful dissociation | A dissociation that breaches the partnership agreement, or, for a partnership with a fixed term, an early withdrawal before the term ends (UPA (1997) §602(b)). The partner who does it is liable for the damages it causes (§602(c)). | How to Leave a Business Partnership |
| Earnout | Part of the buyout price that is not paid up front, instead tied to how the business performs for a period after the sale. It lets a buyer who doubts the business's numbers pay less if they turn out to be right. | How to Finance a Partner Buyout |
No row matches that.
Citations use the 1997 Uniform Partnership Act's original section numbers. The 2013 harmonized text renumbers some: fiduciary duties move from Section 404 to Section 409, and the nonwaivable rules move from Section 103 to Section 105.
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