It’s exciting to develop a business idea with a friend or partner and think about how to implement it. But jumping into a business venture with a friend can also lead to disagreement, confusion, and frustration. Relying on a handshake or someone’s word is not always reliable. One way to be sure you and your business partner are on the same page about how the business will operate is by entering a partnership agreement. But what is a partnership agreement? It’s a legally binding document that outlines the roles, responsibilities, and terms of the partnership, helping to prevent misunderstandings and protect your interests.
What Is a Limited Partnership Agreement?
A Texas limited partnership is a business structure where two or more people agree to run a business together for profit. In a limited partnership, there are general partners and limited partners. The general partners manage the business day-to-day and are liable for the company’s financial obligations. The limited partners invest in the business and provide capital but don’t assist with its management and are not responsible for financial obligations beyond their investment.
A Texas partnership agreement is a legally binding document that governs how the business operates and sets forth the responsibilities of each partner. So, what is a limited partnership agreement? It’s a specific type of partnership agreement that outlines the roles and responsibilities of both general and limited partners, including how much of the business each partner owns, how profits are distributed, how the business will be managed, and how disputes will be resolved.
Why Do I Need a Partnership Agreement?
While not required to be in writing, a written partnership agreement establishes common business scenarios and solutions so that you and your partners are aligned and understand one another’s obligations.
Sometimes, we hear each other but don’t really listen or have the same interpretation of what we discussed. By discussing with your partner how you want your business to be run and memorializing it in writing, you can clarify your intentions and create a framework for managing disputes when they arise to minimize confusion and misunderstanding.
Additionally, if you don’t have a partnership agreement, your business may be dictated by Texas state partnership laws. These laws are usually one-size-fits-all and might not be how you and your business partner want things to operate.
What Does a Partnership Agreement Include?
The key components of a Texas partnership agreement include:
- Ownership—clearly state what percentage of the business each partner owns;
- Roles and responsibilities—outline what each partner’s role in the business is, as well as leadership structure and workload;
- Decision-making—set out how decisions will be made (unanimously, consensus, majority, voting based on percentage of ownership) and how to ensure each partner’s voice is heard;
- Capital contribution—how much and what type (money, property, or services) of capital is each partner responsible for at the beginning of the venture and if the business is running low on money down the road;
- Profit division—how to divide profits among the partners and if profits can be reinvested into the business;
- Confidentiality—include provisions related to what information must be kept confidential, as well as non-disclosure agreements, non-solicitation agreements, and non-compete agreements;
- Dispute resolution—process for how conflicts are resolved (internally, arbitration, mediation, litigation);
- Death, disability, or withdrawal—include what will happen if a partner dies, becomes unable to continue operating the business, or withdraws from the company; and
- Losses and liabilities—how partners share the losses of the business.
Each partnership may have slightly different provisions related to its structure, ownership, partners, and profits. A business attorney can help ensure your partnership has the provisions best suited to your company’s needs.
Do I Need an Attorney to Make a Partnership Agreement?
Though many templates and resources are available to create a partnership agreement on your own, it is strongly recommended that you work with an experienced attorney. If you write the agreement without legal support, you may fail to include important provisions or not recognize that you need others.
A business dispute lawyer can help you plan for and develop contingencies for managing problems that may arise in the partnership. For a partnership agreement, Texas attorneys have a keen understanding of the state’s laws and how to comply with them. They can draft the provisions related to your partnership and anticipate potential issues.
Hire The Curley Law Firm to Draft Your Limited Partnership Agreement
The Curley Law Firm has over 16 years of experience helping entrepreneurs and business partners jumpstart their companies and partnerships. Adam Curley can review your business plan, assist with related state filings, and create a well-drafted, creative partnership agreement that mitigates risk and fits your unique partnership. Adam has assisted hundreds of entrepreneurs with setting up their partnership agreements. As a solo business lawyer, Adam prides himself on giving each client individualized, one-on-one attention. Adam is always available to answer questions and strategize to achieve your business goals. Contact The Curley Law Firm today to learn more about how Adam can help with your partnership agreement.