Some people think that forming a business partnership with one or more other people is always a complicated matter. However, many people already have partnerships and do not even realize it. Unlike corporations or limited liability companies, partnerships do not have to formally file paperwork with the state of Texas to begin operations. Instead, a partnership exists whenever two or more people begin any type of business together for profit.
For example, two college students are home for the summer and decide to make some extra money by cutting lawns. They work together to secure a lawnmower, organize a schedule, do the labor, and then split the profits. Under Texas law, they have a partnership and may not even realize it.
Many partnerships, however, are significantly more complex. Two people who operate a business together may open themselves up to liability, as a general partnership has no legal or financial liability protections. This means partners can be held personally responsible for business debts or any harm caused through the business operations. A vendor or another creditor may come after a partner’s personal assets and property to fulfill a partnership debt. In addition, without any formal written agreements, you and your partner may have legal disputes that can be costly for you, your business, and your family. For these reasons, it is always wise to consider taking steps to protect yourself in a partnership.
Consider a Partnership Agreement
Even if you do not wish to create a more formal business entity, you should – at the very least – have a partnership agreement in place. This agreement helps set out clear expectations of each partner and can help settle any disputes and misunderstandings that arise. Partnership agreements may address the following and more:
- How much each partner will contribute
- How profits and losses will be allocated
- Rules and processes for decision-making
- Each person’s management role and authority
- How new partners may be admitted
- How disputes should be resolved
- What happens in the event that one partner quits, files bankruptcy, or passes away
Consider Forming a Limited Liability Entity
A partnership may formally file documents with the Texas Secretary of State to form a business entity that provides greater liability protections. You have many options when choosing a business entity, each with its own potential benefits and drawbacks. You and your partner should discuss which entity is best for you with a skilled business attorney before filing.
Discuss Your Business Entity Options With a Houston Business Lawyer
The Weisblatt Law Firm has seen many partnership disputes arise because partners did not take the steps necessary to prevent disputes or limit liability. Just because certain documents are not legally required does not mean they do not serve an important purpose for you and your business. For more information about your options, please contact our Houston business attorney at 713-352-0847 or contact us online today.