In Texas, a business partnership refers to a type of business formation that is created when two or more people agree to operate a business together with the goal of earning a profit. What makes partnerships in Texas an appealing business option is that this arrangement doesn’t require a formal written agreement or registration to be recognized under state law. In fact, according to Section 152.051 of the Texas Business Organizations Code, a partnership exists when individuals carry on a business as co-owners, even if they don’t explicitly call it a partnership.
Each partner in a general partnership typically shares equally in the business’s profits, responsibilities, and liabilities unless they agree otherwise. This means that all partners can make decisions on behalf of the business and are personally responsible for any debts or legal obligations the partnership incurs. Because of this shared liability, it’s common for partners to draft a written business partnership agreement to clarify their roles, contributions, and how they would go about dispute resolution procedures.
It is important to note that Texas permits partnerships to operate under a different name than the legal names of the partners. If the partners choose to do so, they must file an assumed name certificate with the county clerk where the business is located, as required by Section 36.10 of the Texas Business & Commerce Code. This helps ensure transparency and allows the public to identify who is behind the business name.
If you are considering forming a partnership or have any questions regarding partnerships in Texas, it is recommended to set up a lawyer consultation with a Texas lawyer who is experienced in handling various different business arrangements and structures. They can answer any questions you may have and help you determine if a partnership is the correct option for you.
How Do You Make a Successful Partnership Agreement?
In order to create a strong partnership agreement in Texas, it’s essential for the partners to clearly define how their business will operate. This includes outlining how profits and losses will be shared, who has authority to make decisions, how disagreements will be resolved, and what happens should a partner exit the partnership.
Although Texas law does not require a written agreement to form a partnership, Section 152.002 of the Texas Business Organizations Code allows partners to customize many aspects of their relationship through a written contract, which helps avoid confusion and future disputes.
It’s wise to seek a lawyer for partnership agreement when drafting a partnership agreement in order to ensure it complies with Texas law and reflects the partners’ intentions. An attorney can help tailor the agreement to the specific needs of the business and ensure that all legal requirements of a partnership are met, such as registering an assumed name if the business operates under something other than the partners’ legal names. Legal support is especially valuable when the partnership involves complex arrangements or when partners want to safeguard their interests from the outset.
How Much Does It Cost To File for a Partnership in Texas?
In Texas, forming a general partnership does not require a state filing fee because there is no mandatory registration with the Secretary of State. As mentioned above, a general partnership is created automatically when two or more individuals agree to carry on a business for profit, as outlined in Section 152.051 of the Texas Business Organizations Code. This is what makes it one of the most cost effective business structures to initiate, especially for small ventures or informal arrangements.
However, if the partnership operates under an assumed name (i.e., a name that doesn’t include the surnames of all partners), it must file an Assumed Name Certificate with the county clerk. This is commonly known as a DBA. The filing fee for a DBA varies by county but generally ranges from $15 to $25. This requirement is governed by Section 36.10 of the Texas Business & Commerce Code. While the partnership itself doesn’t incur state-level formation costs, partners should still consider legal and administrative expenses, such as drafting a partnership agreement or consulting an attorney.
It is also important to note that general partnerships in Texas are not subject to the state’s corporate franchise tax unless they are registered as limited liability partnerships or elect to be taxed as corporations. In other words, partnerships don’t generally have to worry about corporate tax.
Who Has Control in a Partnership?
As mentioned above, in a Texas general partnership, control is typically shared equally among the partners unless a partnership agreement specifies otherwise. Each partner has the authority to act on behalf of the partnership and participate in management decisions, as outlined in Section 152.203 of the Texas Business Organizations Code.
This default rule assumes equal rights in the absence of a written agreement, meaning any partner can bind the partnership in business dealings. Once again, in order to avoid confusion or disputes, partners often draft an agreement that allocates control based on roles, contributions, or voting rights.
It is important to note that when general partnership dissolution occurs, control shifts toward winding up the business and resolving outstanding obligations. Under Section 11.051 and Section 152.701 of the Texas Business Organizations Code, dissolution can occur due to events such as a partner’s withdrawal, death, or a mutual decision to end the partnership.
Once dissolution begins, the remaining partners or designated representatives are responsible for settling debts, distributing assets, and completing unfinished business. Clear control provisions in the partnership agreement can help streamline this process and reduce the risk of conflict during dissolution.
Can I Face Liability in a Partnership?
In short, yes, but it depends on the type of partnership. In a Texas general partnership, each partner can be held personally responsible for the business’s financial obligations and legal liabilities. This means that if the partnership owes money or faces a lawsuit, any partner could be required to cover the full amount, regardless of who incurred the debt.
Texas law, specifically Section 152.306 of the Business Organizations Code, outlines this shared liability. Because of this risk, partners often seek ways to limit exposure through insurance or by choosing a different business structure.
Texas offers two partnership options that help reduce personal liability: the Limited Liability Partnership (“LLP”) and the Limited Partnership (“LP”). An LLP Texas is a type of Texas limited partnership that protects all partners from being personally liable for the actions of other partners or the debts of the business, as long as the entity is properly registered with the state.
In contrast, an LP includes at least one general partner, who remains fully liable, and one or more limited partners, who all have their liability capped at their investment and typically don’t manage the business. These alternatives provide more protection than a general partnership and are governed by Chapters 152 and 153 of the Texas Business Organizations Code.
How Are Partnerships Taxed in Texas?
As mentioned above, general partnerships in Texas are not subject to the state’s franchise tax, unless they register as a limited liability partnership or elect to be taxed as a corporation. Partnerships are typically treated as pass-through entities for federal tax purposes. This means that the partnership itself does not pay income taxes. Instead, profits and losses are passed through to the individual partners, who report them on their personal income tax returns.
However, if a partnership opts to register as an LLP or operates as a limited partnership with certain characteristics, it may become subject to the Texas franchise tax. This tax is based on the entity’s margin, which is generally calculated using total revenue minus certain deductions. Regardless of tax status, partnerships must still file an annual information return with the IRS (Form 1065) and provide each partner with a Schedule K-1 detailing their share of the income or loss.
How To Dissolve a Partnership in Texas
In order to dissolve a partnership in Texas, the partners must either agree to end the business or trigger dissolution through events like withdrawal, death, or bankruptcy, as outlined in Sections 11.051 and 152.701 of the Texas Business Organizations Code.
Once the dissolution process begins, the partnership must wind up its affairs by settling debts, distributing assets, and completing any remaining obligations. If the partnership is registered, such as a limited liability partnership, then it may also need to file termination documents with the Secretary of State and cancel any assumed name certificates with the county clerk.
Do I Need a Texas Lawyer To Form a Partnership?
If you are considering forming a partnership or are having any issues regarding a partnership that you are involved in, it is recommended to consult with an experienced Texas corporate lawyer. LegalMatch can assist you in locating an attorney near you who is familiar with state laws and issues surrounding partnerships.
They will be able to answer any questions you may have and help you determine your best course of legal action moving forward. They will also be able to evaluate your circumstances to determine your best business decision moving forward. They can also work with you to resolve any disputes you may be facing. Finally, should court intervention be required, they can file all the necessary documentation and represent you in court, as needed.
