Under current guidance, NFP general partners are presumed to control a for-profit partnership, regardless of their ownership interest, unless that presumption is overcome. If the presumed control is not overcome, the NFP general partner is required to consolidate the for-profit limited partnership. The presumption is overcome if the limited partner has either substantive kick-out rights or substantive participating rights. If applicable, kick-out rights and substantive participating rights are typically described in the limited partnership agreement (or operating agreements for limited liability companies).

The substantive kick-out right is the ability of the limited partner to dissolve the limited partnership or otherwise remove the general partner without cause by a simple majority vote, and that vote is accomplished with no significant barriers.

Examples of substantive participating rights include the following: (1) selecting, terminating, and setting the compensation of management responsible for implementing the limited partnership’s policies and procedures; and (2) establishing operating and capital decisions of the limited partnership, including budgets, in the ordinary course of business.

The release of ASU 2017-02 did not change the general guidance surrounding presumption of control and what is needed to overcome that presumption.
ASU No. 2017-02 is effective for NFPs for fiscal years beginning after December 15, 2016. Early adoption is permitted. NFPs that have adopted ASU 2015-02 are required to adopt the amendments of ASU 2017-02 retrospectively to all relevant periods, beginning with the fiscal year in which ASU 2015-02 was initially applied.

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If you have any questions regarding ASU 2017-02 and its applicability to your organization, please contact Jim Shellenberger at [email protected], Dan Kern at [email protected] or our Affordable Housing Team at [email protected].