Partnerships offer a number of advantages, including the sharing of expenses and drawing from the skills of other partners. But prudent business practices require that partners enter into a partnership agreement. By formalizing the relationship among partners, including how liabilities and profits will be shared, these agreements can reduce litigation risks.
An experienced Houston business law attorney can help your partnership draft and execute a comprehensive agreement. Find out why so many partnerships trust the counsel of the Oracle Legal Group.
Four types of Business Partnerships
You may have informally created a partnership without realizing what type it is. There are four types of business partnerships recognized in Texas.
This is the most basic partnership form. Partners in a general partnership are personally liable for all of the partnership’s debts. As for taxes, partners account for their income in the same way as they would taxes on personal income. However, with general partnerships, there are no franchise taxes.
There are both limited and general partners in a limited partnership. The general partner is liable for all debts, just like with a general partnership. But limited partners are only liable for debts that are associated with their investments.
Both types of partners account for their income from the business. The limited partner is responsible only for taxes on income generated from his or her share of ownership. Limited partnerships pay franchise taxes.
Limited Liability Partnership (LLP)
LLPs are typically beneficial to businesses with high liability risks. Its partners only have liability exposure to the portion of the partnership that they personally created. Partners are not responsible for the debts of other partners. LLPs pay franchise taxes.
This is a special form of general partnership. Typically, a joint venture will only last long enough to complete a specific transaction. Joint ventures are common in the real estate industry and in foreign investments. Just like a general partnership, joint venture partners are completely liable for their debts and taxes.
Our Approach to Drafting Partnership Agreements
There are several objectives to entering into a partnership agreement, including:
- Setting the partners’ respective rights and duties, including how profits and debts will be shared.
- Minimizing risk for all partners.
- Establishing how to determine the value of the partnership.
- Instituting conflict resolution methods in the event of a dispute.
- Formalizing the core mission of the partnership.
A knowledgeable Houston business lawyer will review the details of your organization and draft a customized partnership agreement. Every partnership is different, and so too is every agreement. For instance, your partnership may create and use intellectual property. In this case, you may wish to include limits in the agreement on how that property may be used.
Without this, a partner could leave the partnership and then start using intellectual property that belongs to the company. Another partnership may have no use for intellectual property terms because they might not create any.
Ready to Serve the Interests of Your Partnership
We have experience working with partnerships of varying sizes in many different industries. Regardless of the type of partnership you choose, we can draft an enforceable partnership agreement. These are clear, well-defined, and customized contracts that suit the exact needs of your partnership.
Don’t expose your business to unnecessary risks by foregoing a partnership agreement. Reach out to the Oracle Legal Group today to get started.