Texas entrepreneurs have many different options when selecting a business entity for their new ventures. Corporations, limited liability companies, partnerships, and sole proprietorships all have different benefits and risks that owners must carefully assess before starting the process of legal formation. An experienced Texas business attorney can help you select the business entity type that best meets you and your business partners’ needs.
The Different Types of Partnerships
Pursuant to Section 152.052 of the Texas Business Organization Code, the following factors indicate that two or more persons have created a partnership:
- Receipt or right to receive a share of profits of the business
- Expression of an intent to partner in the business
- Participation or right to participate in the control of the business
- Agreement to share, or sharing, losses of the business, or liability for claims by third parties against the business
- Agreement to contribute, or contributing, money or property to the business
These factors guide courts when making later determinations about whether a partnership exists. They can also give entrepreneurs some practical guidance about whether a partnership is, indeed, suited to their needs.
Texas statutes provide for two different types of partnerships: general and limited. General partnerships are governed by Chapter 152 of the Business Organization Code, while limited partnerships are governed by Chapter 153. General partners are usually equally liable for all assets and liabilities of the business. A limited partner’s limited liability is based on a smaller role and initial investment in the business. The limited partner can lose this protection by participating in the control of the business.
Important Questions to Ask Before Forming a Partnership
Before entering into any type of legal partnership, ensure that your needs and expectations align with those of your partner (or partners). Either or both partners can manage the partnership. If the partners do not know clearly know how they will perform daily management and long-term planning, they will probably experience a rift in the partnership that will impair profitable operations. Partners who share joint management can still suffer a rift if their management styles clash with one another.
Clearly lay out financial goals, too, before forming the partnership. A limited partner may wish to recoup the investment without any further financial stake in the business. This may become incompatible with a general partner’s desire to make more aggressive investments and management decisions on the chance of recovering a larger return on investment. A financially aggressive partner may wish to recoup the initial investment within a year, whereas a more cautious partner may wish to make less risky decisions and wait for a longer return on the initial investment. Clearly discuss and agree upon these expectations before forming any legally binding business entity with your partners.
Effective Legal Advice for Your Partnership Needs
Attorney Andrew Weisblatt has helped entrepreneurs form effective business entities and resolve disputes effectively for 25 years. The Weisblatt Law Firm offers consulting services for both business formation and dispute resolution. Call (713) 352-0847 or write to us online to schedule your free phone consultation today. We will ensure you have access to the best tools for your business needs.