Partnership Agreement Texas: Everything You Need to Know
A partnership agreement Texas, can be as simple as a general partnership or as complex as the various limited liability partnerships.3 min read
A partnership agreement Texas, which professionals may form, can be as simple as a general partnership or as complex as the various limited liability partnerships. The role that individuals want to have within the business will determine the type of partnership they will enter into.
Types of Texas Partnerships
- General Partnerships (GP) - GPs stipulate that the general partner is solely liable for any debts of the partnership. Income from the partnership is accounted for by the partners in the same fashion as personal income. State franchise taxes are not applicable to this type of partnership.
- Limited Partnership (LP) - General and limited partners are found in this partnership. Limited partners are only responsible for investments they personally have with the business. General partners accept full financial liability for the debts of the partnership. Both limited and general partners will claim their portion of revenue in the same way they do personal income. Franchise taxes are applicable to this type of partnership.
- Limited Liability Partnership (LLP) - This type of partnership provides protection to all partners from business-related liabilities that they did not personally create. They continue to be liable for any debts established while they were in charge of the business. LLPs and GPs are taxed the same way, but LLPs are subject to more regulation because of their status of being a limited entity status. Franchise tax is applicable to LLPs.
- Limited Liability Limited Partnership (LLLP) - This type of partnership allows capped business debt responsibility to be that of their total investment for limited partners. LLLPs also protect GPs from debts of the business that they were not responsible for. Franchise taxes are applicable to this type of partnership.
Forming a Texas Partnership
These five steps can assist you in forming a partnership in Texas.
- Name your business. While there is a benefit to creativity when selecting a name, you need to remember that your name will affect how your new business is perceived publicly. You should also include the entity type in the name.
- Registering your name. Confirm with the Secretary of State to verify the availability of your name. You can protect the name by registering it with the Secretary of State.
- Complete the paperwork required. Filing necessary paperwork along with the fee associated is usually required for partnerships in Texas. Businesses from outside the United States may have additional fees and requirements.
- General Partnerships (GP) - Registering with the Secretary of State is not required for GPs other than the Assumed Business Name Registration. Having your partnership agreement in written form is highly recommended.
- Limited Partnerships (LP) - A Certificate of Limited Partnership is required for LPs in the state of Texas.
- Obtain an EIN, licensure, and tax IDs. If hiring employees is in your future, you will need to obtain an IRS Employer Identification Number (EIN). While not required of businesses not hiring employees, it is strongly encouraged and useful for business credit cards and bank accounts. Specific licensure may be required for businesses such as electricians, plumbers, and other contractors. You should also check for any other applicable taxes.
- Organize day-to-day activities. You will receive a certified, stamped copy of your paperwork from the Secretary of State once approved. Once this is received, you are free to conduct business.
- Open separate accounts in the business name to track fiscal liability.
- Obtain a physical address where mail and legal notices can be sent to the business.
- Ensure all partners have a copy of the partnership agreement outlining how the partnership will be handled. Situations such as addition of new partners, partners leaving, or ending the business should be addressed.
Having a comprehensive partnership agreement not only helps your new business run smoothly but protects all partners as well.
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