Partnerships are common in the world of business and can have a powerful impact on bringing a company to life. Sharing responsibilities in a company can capitalize on the areas of expertise each individual partner has, and strengthen an organization as a whole. However, like many aspects of life, there are also drawbacks to operating a business with one or more partners.
If a dispute or misconduct has arisen between you and your business partner, the Houston business partnership dispute lawyers at Feldman & Feldman PC are here to assist you. We can resolve complex business issues and show you what legal options and strategies are available to you. Contact us to learn more.
Type Of Business Partnerships
Business partnerships can be a tremendous way to operate a business and share responsibilities. However, before creating a partnership, it’s important to understand what kind fits your needs and works best for your situation. In Texas, the Governor’s Small Business Handbook outlines the three types of partnerships you may enter into when creating your business, which are:
- General Partnership: This type is composed of two or more individuals who run a business and make a profit. While the partnership forms a small business, the partners are still recognized and held liable as individuals and have an equal share in both assets and debts. A general partnership is typically governed by a partnership agreement, but it can also be used with an assumed name certificate if the partnership is doing business as (DBA) another name.
- Limited Partnership: These partnerships are composed of one or two individuals who operate as general partners, while any additional individuals or entities are considered to be limited partners and do not share the same responsibilities. The partners are also recognized as individuals. They must have a partnership agreement and certificate of formation in order to operate in Texas.
- Limited Liability Partnership: An LLC is a type of general partnership where the partners are not liable as individuals for debts and other business obligations. Formation of a limited liability partnership must be registered with the Texas Secretary of State.
Talking to a lawyer before you ever form a partnership can help you and potential business partners better understand all of the legal ramifications you may face with each structure. These conversations can reveal pros and cons of each approach so you can choose the one best suited to your business.
Working with a lawyer early on can also provide sound guidance on what to include as you draft your business partnership agreement.
Forming a Business Partnership in Texas
Forming a business partnership in Texas follows many of the same steps required for other business structures. For example, you must register and file your paperwork with the state after choosing the business structure that works best for you. However, because a partnership involves additional individuals, there are some steps that are unique to partnerships.
According to Texas Business Organization Code § 152.052, the state recognizes the following elements for starting a partnership:
- Documentation showing each partner’s right to be able to receive and share profits from the business
- An expressed intention to create a partnership
- Each individual shares ownership of the business
- Agreement to share losses and liabilities, and fund the business
Additionally, while having a partnership agreement is not required in the state of Texas, it is highly recommended to have one for legal protection. It can also be used in the event any disputes arise in the future. Talk to a business partnership lawyer if you are unsure of what to include in your partnership agreement.
Best Practices for Partnership Agreements
Best Practices for Partnership AgreementsA partnership agreement is beneficial for outlining in writing everything you and your partners agreed to at the start, as well as how to prevent and deal with complications. As such, a partnership agreement should state the level of authority each partner has in the business and how profits will be divided among the partners.
A partnership agreement can also provide clarity by articulating how each member will financially add to the business. The most important aspect of a partnership agreement, though, is a dispute clause. This describes how any issues and disputes should be handled and what steps should be taken to remedy the dispute.
Advantages of Business Partnerships
There are many advantages to going into business with one or more partners. To begin with, partnerships can be easy to create and have a lot of flexibility built into the structure, especially in a general partnership. Combining expertise and sharing costs and business connections can remove a significant amount of stress from the process of starting a business.
Sharing the workload also helps with everyday business operations. A business partnership can also reduce the amount of paperwork and tax forms you are required to file. While a partnership must file earnings and losses annually with the Internal Revenue Service (IRS), they do not have to pay income tax.
Disadvantages of Business Partnerships
When business partnerships become contentious for one reason or another, it can lead to some serious business legal issues. Partnership disputes often arise out of a breach of contract or responsibility, as well as disagreements about how business matters should be conducted and operated. Financial disagreements or misconduct can be a particular pain point for business partners since each is affected and held liable even if only one partner has acted poorly.
Other problems can arise depending on the structure of the business. In two out of the three partnership structures, partners retain individual liabilities. If there are issues with finances, taxes, legal matters, misconduct, negligence, or other problems, each person will be held equally responsible and be affected by the matter in question. Even an individual’s assets can be at risk. Additionally, sharing business profits and decisions and having limited freedom can also be viewed as disadvantages in a business partnership.
Legal Options for Business Partnerships in Houston, Texas
In the event that problems arise during the course of a business partnership, knowing what rights and protections you have can influence how your dispute is resolved. A business partnership lawyer will review your partnership agreement — if you have one — and thoroughly examine your case from all angles to get the best picture of your situation and create a strategic plan of action.
They can also help you navigate the intricate details and legal ramifications associated with partnership disputes and commercial litigation. Process guidance, dispute mediation, settlement, and dissolution could all be potentially viable avenues your lawyer might consider in order to reach a peaceable outcome for your case. These options can resolve the dispute more readily than having to take the matter to court.
In more complicated or less amicable cases, the best course of action is to file a lawsuit to be heard in court to ensure fair treatment and protection of each partner’s rights. A judge will then review the partnership agreement and resolve the lawsuit through damages owed, enforcing or preventing certain actions among partners, or ending the partnership. A skilled lawyer can help you navigate whatever obstacles your business partnership is facing.
The Role of a Partnership Agreement in Legal Proceedings
Partnership agreements form the foundation of a good partnership and are closely examined when there is a dispute. Since it is a binding contract, the language used in a partnership agreement can be used as a form of evidence. The partnership agreement should ideally also have a dispute clause that outlines what actions should be taken when issues arise, as well as rights, responsibilities, and restrictions that may govern what actions should be taken
Dissolving a Business Partnership
If the partners cannot resolve a dispute or decide they no longer want to work together, the next step could be dissolving the partnership altogether. In such cases, it is in the best interest of the partners to have both a lawyer present and a partnership agreement that outlines what to do in the event that the partnership is dissolved.
A lawyer can ensure all steps are taken properly, all parties are held responsible, and that each partner is treated fairly and retains their rights. If there is no existing partnership agreement, then according to Texas Business Organization Code § 11.057, the decision comes down to who holds the majority-in-interest. The person with more than 50% interest in the company can choose to dissolve the partnership regardless of the number of partners involved.
Feldman & Feldman Is Ready to Represent You
When you need a business litigation attorney to assist with a partnership dispute, the team at Feldman & Feldman can represent you. Our strategic approach helps us thoroughly assess your case to deliver you the best options and results. We work to settle your dispute in the most amicable way possible and turn to litigation as a last resort. We can also provide other services to ensure you have a prosperous business partnership.
Schedule an appointment with our team today to discuss your case and the best options for your situation.