Law Commons^™

Services As Capital Contributions: Understanding Kovacik V. Reed, Royce De R. Barondes

Faculty Publications

This essay examines the capital accounting of Kovacik v. Reed, leading authority addressing allocation of losses between a partner who contributed only property and another who contributed only services. Kovacik posits that such parties having agreed to share profits equally have implicitly agreed their contributions were of equal value. This essay shows that such an agreement would not produce the result Kovacik reaches. The Kovacik result is instead produced by the following implausible implicit agreement between the parties: The value of the services provided by the services partner to be treated as a capital contribution equals the amount the partnership …