Posted by: Jul 09, 2021

texas partnership law

The idea of starting your own business is as central to the ethos of the American Dream as a warm slice of apple pie on the Fourth of July.

The founders of our country were small business owners, and it is small and large businesses that have transformed America into the most prosperous country on Earth.

If you have an idea for a business and are itching to get started, there are a few things you should know before delving too deep into the process.

One of the first things to consider is how you want to structure your business. In this piece, we at The Curley Law Firm break down one of the primary business structures available: the partnership. To this end, we will explore a few types of partnerships, how to start a partnership, and how to ensure that the process goes smoothly.

Why a Texas Partnership?

Compared to other business structures like corporations and LLCs, partnerships are an attractive option for many small business owners. This is due, in large part, to partnerships’ general flexibility and relative ease of use. If you are just starting your business, flexibility is extremely beneficial.

After all, the future is never certain. We live in a globalized world where the impact of unforeseen changes halfway across the world can ripple through the Texas economy.

Furthermore, if the goal of your business is growth, flexibility is crucial. Without flexibility, you may find it difficult to raise capital, find investors, or otherwise adapt your business’s strategy and governance model to accommodate growth or otherwise mitigate the effects of changing circumstances.

Furthermore, partnerships are a bit more user friendly than other business structures: the formalities and red tape surrounding partnerships is far less than that of other business structures.

Types of Texas Partnerships

There are a few different types of partnerships to choose from in Texas, but we will focus on general partnerships (GP) and limited liability partnerships (LLP). Before delving into each of these structures, we should start with partnerships in general.

We know that they are a flexible structure with relatively little red tape, but that doesn’t tell us what exactly a partnership is. At its most basic level, a general partnership, a partnership is just a contract between two or more parties to engage in some sort of business venture.

General Partnerships in Texas

As the most basic form of partnership, GPs are a logical place for us to start. Creating a GP is simple. Unlike other business structures, GPs do not have to file a certificate of formation with the Texas Secretary of State. Instead, a GP comes into existence when any two or more people engage in a for-profit business together.

Importantly, Texas law does not require that the partners in a GP intend to create a GP. All that matters is that the parties participate as owners in a for-profit business venture.

While a GP is its own legal entity separate from the partners, within a GP, every partner to the agreement is liable, personally, for all the business’s debts, losses, and negligence. Importantly, this includes taxes. If you are a partner in a GP, you treat and report all business revenue as you would any other personal income. This also means that if your GP defaults on debt, the lender can seek repayment through your own personal assets.

The law calls this concept joint and several liability. As a result of joint and several liability, GPs are sometimes seen as an unfavorable option for business owners. However, registering a GP as an LLP can alleviate some of that liability while retaining the flexible nature of a GP.

Limited Liability Partnerships

LLLPs take pre-existing business structures like general partnerships and shift some of the liability away from the partners. To register a GP as an LLP, you have to register with the Texas Secretary of State’s office. To make this happen, you need file an application on the Texas Secretary of State’s website and pay a small fee. By filing as an LLP, you and your partners shield yourselves from much of the business’s liabilities. However, as a partner in an LLP, you are not shielded from all liabilities.

If you personally guarantee a loan, for example, you are liable for its repayment, and not the LLP.

Call Us for More Information on Partnerships and Other Business Structures

If you are ready to start your business in Texas, business structure isn’t the only thing you should concern yourself with. Business law is a complex arena, so the best thing you can do for you and your partners to avoid future roadblocks to success is to get in touch with an experienced Texas business attorney.

The head attorney of our firm, Adam Curley, Esq., has considerable experience with Texas business law. Because business law is in a constant state of flux, Adam Curley limits his practice to this area. By doing so, he can keep up to date on all legal developments in this arena and better assist his clients in need.

Don’t wait until you run into red tape or a conflict arises; contact The Curley Law Firm today for a consultation on your business plan.