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Sunday, September 18, 2011

Off The Shelf Operating Agreements

The focus of the court’s analysis seemed to be on the “off-the-shelf” nature of the FLP. They apparently believed that if the FLP were intended for a business or other nontax purpose, more care would have been put into drafting it. Although the Turners provided a laundry list of nontax reasons for forming and funding the FLP, the structure of the partnership and the Clyde Sr.’s relationship with the FLP did not bear out those purposes.

Cases like this aggravate me. How many legitimate businesses use off the shelf operating agreements? How many businesses actually use care in drafting their documents? For that matter, how many attorneys use any care at all? Most operating agreements I see have partnership tax language even if it is taxed as an S Corp or a disregarded entity. In the real world, many businesses forget to even pay their annual fee to the secretary of state....

Of course, it would be much better to draft documents with care. My argument is that this case uses a fictional measure of what actual businesses tend to actually do.....

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