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Loan to sole proprietor from forthcoming partner

Level 1

I have a client who received an informal loan from his father that he used in his sole proprietorship. His father has now become his partner (and consequently the sole proprietorship is now a partnership). How would you handle the loan that was made before the partnership began? I'm inclined to call it a personal loan and have the repayment occur outside of the business. I'd love some other thoughts. 

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2 Comments 2
Level 15

Is it still a loan? Or has it become part of the father's capital contribution to the partnership?

Level 1

I suppose it could be treated either way. The father has not been repaid. The funds were used to purchase equipment that was contributed to the partnership by the original sole proprietor.  

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