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interests in the True partnerships. The reports stated that
potential buyers would not want to spend time analyzing an offer
price if there were other buyers with prior purchase rights,
especially if those buyers were current owners and operators of
the business. Additionally, the universe of potential purchasers
would be reduced by (1) the requirement that all partners (or
their spouses) actively participate in the business and (2) the
prohibition against encumbering partnership interests (treated as
a sales event triggering mandatory buy-sell), because purchasers
would have difficulty obtaining financing without pledging the
subject interests.
Fourth, the Kimball reports suggested that potential
investors would hesitate to expose themselves to personal
liability as general partners given the environmental and
business risks associated with the oil and gas industry.
Fifth, the Kimball reports observed that none of the True
partnerships had made section 754 elections, so that a
hypothetical purchaser of the subject interests would recognize
built-in gain on sales by the partnerships of their assets. The
Kimball reports explained that this would adversely affect
marketability because a hypothetical purchaser could avoid such
built-in gain through an outright purchase of assets similar to
those owned by the partnership.
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