Yes, in Texas, a corporation can be a partner in a partnership. A corporation can enter into a contract.
It can also participate in many of the same business activities as an individual, including being a partner. In the partnership, the corporation may share in the profits of the partnership as well as be responsible for its liabilities and debts.
Corporations in partnership will have various duties and responsibilities just as individual partners do. There can be advantages to having a corporation as a partner because they provide legal and financial protections that individuals do not.
In most situations, officers of corporations sign partnership agreements on behalf of the corporation. A general partner in a partnership is an individual with unlimited liability for the partnership debts.
Corporations, on the other hand, have limited liability. A general partner may be sued in order to collect the partnership debts but a corporation is a separate legal entity that shields the personal assets of the owners from lawsuits.
Corporations that act as partners can receive a share of the profits of that partnership. They can also be held responsible for settlements, judgments, and the debts of the partnership.
It is important to be aware that only assets of the corporation itself can be used to satisfy liabilities or debts of the partnership. This means that the assets of the shareholders, employees, and officers cannot be used.
In most states, partners can be people, another partnership, a corporation, a trust, or a limited liability company (LLC). An S corporation can be a partner in a limited liability partnership and a general partnership.
S corporations have pass-through income. This means that individual shareholders report income and losses on their personal tax returns.
Unlike C corporations, S corporations are not subject to double taxation. To be an S corporation, it must meet several requirements, including that it:
- Does not have more than 100 shareholders
- Only has one class of stock
- Can only have certain, specific shareholders, which may include:
- Individuals, estates, and certain trusts
- Does not include corporations, partnerships, or non-resident aliens as shareholders
- Must be a domestic corporation
- Is not an ineligible corporation under the Internal Revenue Code, which may include:
- Insurance companies
- Certain financial institutions
Limited liability partnerships do not shield partners from the liabilities that arise from their own negligence. When an S corporation is a partner in an LLP, however, it does shield its shareholders against liability for negligence.
An LLP can have more than one S corporation. An LLP is required to file a registration renewal each year or it can lose its limited liability protections. This can make the partners vulnerable to claims for their personal assets.
Both people and corporations can be in general partnership as well as limited partnerships. In a general partnership, all of the partners are engaged in the daily operations of the business.
The partners are also required to equally pay the liabilities of the partnership. On the other hand, partners in a limited partnership are not usually actively involved in its daily operations.
A limited partnership is called limited because the partners involved have limited liability. For example, with startups, corporations may be limited partners, meaning they are only liable for the debts of the startup beyond the amount that was initially invested.
Texas lawyers have the ability to help their clients understand the advantages and disadvantages of having a corporation as a partner. Attorneys can also help a corporation become a partner in a partnership.
Legal Requirements for Forming a Partnership With a Corporation
In Texas, there are certain legal requirements for forming a partnership with a corporation. To create a partnership, the corporation must:
- Appoint a registered agent
- Obtaining an Employer Identification Number (EIN) for the partnership
- File the required paperwork with the Texas Secretary of State
It is strongly recommended to draft a formal, written partnership agreement, even though it is not legally required. These agreements often define the roles, responsibilities, and profit-sharing structure of the partnership.
When a new partnership is formed, it has to have its own EIN from the Internal Revenue Service (IRS). Although written partnerships are technically not required, as a partnership may be orally created or by implication, it is essential to put any agreement in writing. A written agreement can help with any future issues and may be used as evidence in court.
Additionally, partnerships may have to register the business name and get any of the required licenses and permits from the federal, state, and local levels for the partnership to operate. It is important to have a Texas lawyer consultation to help ensure the partnership is properly formed, meets all legal and permit requirements, and a clear and enforceable partnership agreement is in place.
Advantages and Disadvantages of a Corporation Joining a Partnership
Having corporations as business partners can come with advantages as well as disadvantages.
Advantages
Corporations in partnership can provide additional capital as well as other types of resources, including access to additional opportunities and contacts that can help expand business opportunities. This can assist with the expansion and growth of the partnership.
Having a corporation can also give the new business access to additional skills and opportunities. This will also allow for additional perspectives that can assist with problem-solving and decision-making.
A corporation will also share the burden of running a partnership. This may lead to a better work-life balance for the partners in addition to increased efficiency.
It is usually less expensive to set up and maintain a partnership than other types of businesses, especially when making a new branch or subsidiary of a corporation.
Disadvantages
There are also disadvantages when a corporation joins a partnership, such as unlimited liability for the assets of the corporation, the potential for disagreements, and the loss of full autonomy. In addition, the partnership structure can make it difficult for a corporation to exit the partnership because the decisions are not made solely by the corporation.
If a corporation is a partner, it may be held liable for any legal debts and obligations of the partnership. This means the assets of the corporation are at unlimited risk.
When a corporation enters into a partnership, there can be disagreements over numerous issues, including business strategy, finances, and others. It can be more difficult to resolve these issues because of the structure of the partnership.
Corporations in partnerships have to share in decision making. This can make the process slower. The corporation also has limited control over the partnership.
When corporations join partnerships, an officer of the corporation typically signs a partnership agreement. This can mean the corporation itself has lower earnings.
Special Considerations for Corporations Serving as Partners
There may be special considerations for Texas corporations that serve as partners. Corporations can usually be partners in general partnerships without issue.
However, with limited liability partnerships (LLPs), there can be restrictions. For example, LLPs may only be available to members with professional licenses.
When a corporation seeks to be a partner in an LLP, it usually has to have a majority of owners who hold professional licenses. It also has to provide professional services related to those licenses.
Do I Need a Lawyer for Assistance With Partnership Laws?
Yes, it is essential to have a consultation with a Texas corporate lawyer if you have any concerns related to Texas partnership laws and having a corporation as a partner. It can be complicated to form a partnership with overlapping corporate interests.
Take advantage of LegalMatch’s no cost lawyer matching services today to find a Texas corporate attorney near you who is ready to help with your partnership issue. You will be matched with licensed and prescreened lawyers in your area, ready and available to help.
