How to Create a General Partnership in Texas | A Complete Guide

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Create a General Partnership in Texas

If you would like to create a general partnership in Texas, there are a few guidelines that you should understand. A general partnership is one of the things that a businessman considers since it comprises two or more entities to carry on a trade or business. Each partner contributes money, property, labor, or special skills, and each partner shares in the profits and losses from the business. You can start an LLC in Texas for your general partnership to personally carry potentially unlimited liability.

Knowing about the general partnerships will benefit you and several partners, making you form your business properly. If you want to know more about the general partnership, follow our steps to Create a General Partnership in Texas.

Webinarcare Editorial Team will help you create with thorough research and market study. Before starting a general partnership in Texas, you must be guided by all the factors we have gathered in this article.

Steps in Creating a General Partnership in Texas

What is General Partnership in Texas?

A general partnership in Texas is a business structure where two or more individuals come together to establish a business and agree to share the profits, losses, and management responsibilities. Each partner contributes skills, resources, and capital to the business and makes decisions collaboratively. In a general partnership, partners have unlimited personal liability for the debts and obligations of the business, meaning their personal assets can be used to cover any debts or liabilities incurred by the partnership. This type of business structure is relatively simple to form and offers flexibility in decision-making and management but lacks the legal protection of limited liability offered by other structures like Texas Corporations or limited liability partnerships.

It is recommended that you consult to Texas Business Attorney before beginning the process of forming your general partnership. They will understand what is best for you and your company. To shield your personal assets from corporate debts, you can always Start an LLC in Texas rather than a general partnership.

– WEBINARCARE EDITORIAL TEAM

Example of a General Partnership

An example of a general partnership could be a small marketing agency created by two friends, Shane and Jane. Shane has a background in graphic design, while Jane has experience in digital marketing strategies. They decide to join forces and create a marketing agency that offers clients a combination of their expertise.

Shane and Jane contribute their skills, resources, and capital to start the business. They agree to share the profits, losses, and management responsibilities. Both partners actively participate in the agency’s day-to-day operations, making decisions and working with clients collaboratively.

In this general partnership, Shane and Jane have unlimited personal liability for any debts or obligations incurred by their marketing agency. If the agency faced financial difficulties, both partners’ personal assets could be used to cover the debts. However, the simplicity and flexibility of the general partnership structure allow them to manage and grow their business together easily.

Individuals looking to collaborate and numerous service providers have chosen general partnerships as their preferred business entity. That’s frequently because of its simple design, low price, and simplicity of setup. Some general partnership examples include: 

  • Providing Professional Services (architectural firms, medical clinics, etc.)
  • Selling goods at retail 
  • Opening a restaurant
  • Texas Business Consulting

General partnerships are also formed by partners who are spouses or other family members who want to operate a business together.

Steps in Creating a General Partnership in Texas

To create a general partnership in Texas, you must follow the guidelines below: choosing a business name, making a partnership agreement, requesting an EIN, getting a license and permit, and opening a bank account. 

Step 1: Choose a Business Name

Naming your business is one of the most important activities during the startup phase, especially if you will form an LLC in Texas. Your general partnership name serves as the foundation for your brand and is what clients use to connect you to the products or services you offer. Legal procedures should be taken into account when choosing your partnership name. Choose a business name that will enable you to develop a strong brand identity without being hampered by irrelevant factors. 

For example, let’s assume the general partnership focuses on providing eco-friendly landscaping solutions. A potential name for this partnership could be “GreenScape Innovations.” This name highlights the business’s core values (eco-friendly) while also showcasing the industry (landscaping) and the innovative approach the partners aim to bring to the market.

For your to come up with this business name idea, here are some guidelines to consider when choosing a name for a general partnership:

  • Reflect on the Nature of the Business: Choose a name representing your products or services, and communicate your business’s essence to your target audience.
  • Keep it Simple and Memorable: A short, easy-to-pronounce name will be easier for customers to remember and share with others.
  • Make it Unique: Research the names of other businesses in your industry to ensure your chosen name stands out and does not infringe on any existing trademarks or copyrights.
  • Consider the Partners’ Names: Some general partnerships incorporate the partners’ names in the business name (e.g., Smith & Johnson Consulting). However, this approach may only be suitable for some businesses, especially if the names are difficult to pronounce or remember.
  • Test the Name: Share the potential name with friends, family, and potential clients to gather feedback and ensure it resonates with your target audience.
  • Check for Domain Availability: Research the availability of your chosen name as a domain name for your website and on social media platforms to ensure a consistent online presence.
  • Avoid Limiting your Business Scope: Choose a flexible name to accommodate future product or service changes. Avoid using specific locations, product names, or niche markets in the name if you plan to expand or diversify later.
  • Comply with Legal Requirements: Ensure the chosen name complies with any legal requirements or restrictions in your jurisdiction, such as avoiding misleading or offensive terms.
  • Consider Professional Input: Consult with Texas Business Attorney or trademark specialist to ensure your chosen name is legally sound and can be registered as a trademark if necessary.

By following these guidelines, you can choose a name for your general partnership that is memorable, unique, and effectively communicates your business’s essence.

In addition, most general partnership businesses use the last name of all of their partners.  For instance, if Jennie Kim and Lalisa Manoban enter business together, the partnership name is “Kim & Manoban” by default. However, if you would like to form a business name under something more appropriate, such as “EJI Design and Build,” then you’ll need to File a DBA in Texas with Texas Secretary of State.

Filing a DBA in Texas has two methods, by mail and in person., which costs around Varies by county. There is ten years validity in renewing your DBA. 

In Texas, if you do not wish to file your general partnership business right away but want to hold the name that you have decided on, then you can reserve your business name for 120 days. You must file a name reservation application in the Texas Secretary of State to keep the name. 

Step 2: Make a Partnership Agreement

After you have chosen a business name for your general partnership, the next step would be making a partnership agreement in Texas. A partnership agreement is a crucial document that outlines the terms and conditions governing a partnership. It helps to establish a clear understanding of each partner’s roles, responsibilities, and expectations and prevents disputes and misunderstandings.

Additionally, it discusses business management guidelines and potential contingencies that may arise, such as a partner’s passing or a partner’s decision to leave the partnership.

A partnership agreement should include the following:

  • Business name
  • Description of the business
  • Contact information of the business and its owners

Ownership of all business partners, decision-making, capital contribution, profits and distribution, death and disability, and withdrawal and addition of partners is one of the key factors to consider when forming or creating a partnership agreement. In this way, all business partners will understand what this is all about and how to proceed if the mentioned scenarios happen. 

Without a partnership agreement, your company will often be subject to the general partnership default laws of Texas. The default laws might not be appropriate for your requirements.

Step 3: Request an EIN in Texas

After completing the partnership agreement, you should get or seek an Employer Identification Number (EIN) in Texas. An EIN will serve as your general partnership’s tax identification number. The Internal Revenue Service can provide you with an EIN. (IRS). It is a nine-digit number comparable to your Social Security number. EIN, on the other hand, is distinct from SSN. It is exclusively used for business-related operations, such as filing general taxes. The form must be filled out and sent to the IRS website. Obtaining an EIN cost between $30 and $280. 

The application of an EIN in Texas can be through the following:

  • Apply Online- The Online EIN application is the preferred method for customers to apply for and obtain an EIN.
  • Apply by Fax- Taxpayers can fax the completed Form SS-4PDF application to the appropriate fax number), after ensuring that Form SS-4 contains all of the required information.
  • Apply by Mail- The EIN application Form SS-4 can be filed via mail. The processing time frame to receive the mail is four weeks.
  • Apply by Telephone-International Applicants – International applicants may call 267-941-1099 (not a toll-free number) from 6 a.m. to 11 p.m. (Eastern Time) Monday through Friday to obtain their EIN.

You can benefit in various ways once you obtain your EIN number. It will give your general partnership the final advantage to operate at its full potential without legal or court problems.

Step 4: Get a License and a Permit

You must have Texas Business License before your general partnership business operates. A business license is a document granted by a government agency that allows you to operate your business in the territory governed by that agency.

To legally operate your partnership, you’ll need a business license. You may need more than one license in Texas. Numerous general partnership licenses need to be filed and renewed regularly.

In Texas, the business license fee costs about $50 – $300.

You can check out the United States Business License & Licensing Fee Resources for more information about the costs in Texas.

Step 5: Open a Bank Account

After filing and receiving your general partnership license, you should open a bank account for yourself, your clients, and your employees.

A US bank account may make your business dealings in Texas easier because it increases your company’s authenticity and profitability. Most banks require an EIN for firms other than sole proprietorships to open a business account. Keeping separate finances also prevents you from combining personal and professional finances.

If you would like to open a bank account in Texas, check out the Best Bank for Texas Small Business.

Pros and Cons of a General Partnership in Texas

In forming a general partnership in Texas, there are pros and cons that you may experience. I will list the pros and cons for you to understand why and how a general partnership is crucial. 

Pros of Forming a General Partnership in Texas

  • Easy and Inexpensive to Form: General partnerships are relatively simple to establish, requiring minimal paperwork and registration costs compared to other business structures like corporations or limited liability companies.
  • Decision-Making: Partners can pool their skills, knowledge, and resources, leading to more efficient and effective decision-making and business operations.
  • Flexibility: General partnerships offer flexibility in management structure, profit distribution, and decision-making processes, allowing partners to customize their business relationships to best suit their needs.
  • Tax Benefits: In most jurisdictions, general partnerships are not taxed as separate entities. Instead, profits and losses are passed through to the partners, who report them on their income tax returns. This avoids the issue of double taxation that affects corporations.
  • Greater Access to Capital: With multiple partners, a general partnership may have increased access to capital and resources compared to a sole proprietorship.

Cons of Forming a General Partnership in Texas

  • Unlimited Personal Liability: In a general partnership, all partners have unlimited personal liability for the debts and obligations of the business. This means that each partner’s personal assets can be used to cover any debts incurred by the partnership, which can be a significant risk.
  • Potential for Conflicts: As partners share management and decision-making responsibilities, disagreements or conflicts can arise, negatively impacting the business’s operations and success.
  • Limited Lifespan: A general partnership’s existence is often tied to the lives of its partners. The partnership may be dissolved if a partner withdraws, becomes incapacitated, or dies, potentially leading to instability and uncertainty.
  • Difficulty in Raising Capital: While general partnerships may have more access to capital than sole proprietorships, they may still need help raising funds compared to corporations or limited liability companies, as investors may be more hesitant to invest in a business with unlimited personal liability.
  • Lack of Legal Distinction: Unlike corporations or limited liability companies, general partnerships do not have a separate legal identity from their partners, limiting the partnership’s ability to enter into contracts or own property in its name.

When considering a general partnership, weighing the pros and cons and assessing whether this business structure aligns with your goals, risk tolerance, and desired level of management involvement is essential.

Maintain Business License in Texas

You must maintain or renew your business license regularly now that you have established your general partnership. Make time at least once a year to check the status of your licenses. Then you will get everything important. You can deal with any problems that arise. In Texas, the business license fee ranges from $50 – $300, and varies by jurisdiction and license type.

Pay Your Taxes in Texas

Even if you have established your general partnership in Texas, pay your taxes and keep everything up to date so you won’t pay any penalty. 

Texas taxes information will help you with what to pay before or during the operation of your professional corporation. You can check out the Texas Small Business Taxes to further understand why you must pay your taxes on time. 

Can I Convert My General Partnership Into Another Business Entity in Texas?

By following the appropriate state procedures, you can convert your general partnership into another business entity, such as Texas Corporation converting to an LLC; or Sole Proprietorship to Texas LLC. This may involve filing conversion documents with the Texas Secretary of State’s office and paying any required fees.

FAQs

What is a general partnership in Texas?
A general partnership in Texas is an association of two or more persons who carry on a business for profit as co-owners.
Is a general partnership suitable for small businesses in Texas?
Yes, a general partnership is often suitable for small businesses in Texas because it is relatively simple and straightforward to form and operate.
How do I create a general partnership in Texas?
To create a general partnership in Texas, you must file a partnership agreement with the Secretary of State.
Can I operate a general partnership under a different name in Texas?
Yes, you can operate a general partnership under a different name in Texas as long as the name is registered with the Secretary of State.
Do I need an attorney to form a general partnership in Texas?
No, you do not need an attorney to form a general partnership in Texas, but it is recommended to get legal advice regarding your partnership agreement.
What is a partnership agreement in Texas?
A partnership agreement in Texas is a legal document that sets forth the terms and conditions of the partnership, including the management of the partnership, the allocation of profits and losses, and the rights and responsibilities of the partners.
Can I use a template partnership agreement in Texas?
Yes, you can use a template partnership agreement in Texas, but it may be advisable to have an attorney review the agreement to ensure that it meets your needs and complies with Texas law.
What are the tax implications of a general partnership in Texas?
The tax implications of a general partnership in Texas depend on the individual circumstances of the partnership and its partners. Generally, partnership income is taxed as individual income for each partner.
Can foreigners create a general partnership in Texas?
Yes, foreigners can create a general partnership in Texas as long as they meet all Texas legal requirements.
Do I need a separate tax ID number for my general partnership in Texas?
Yes, you need a separate tax ID number for your general partnership in Texas. You can obtain a tax ID number from the IRS website.
Can a spouse be a partner in a general partnership in Texas?
Yes, a married spouse can be a partner in a general partnership in Texas.
Can I limit my liability in a general partnership in Texas?
No, partners in a general partnership in Texas have unlimited personal liability for the debts and obligations of the partnership.
Can a general partnership in Texas own real estate?
Yes, a general partnership in Texas can own real estate.
Can a partner transfer their ownership interest in a general partnership in Texas?
Yes, a partner can transfer their ownership interest in a general partnership in Texas, subject to the terms of the partnership agreement.
What happens if a partner dies in a general partnership in Texas?
If a partner dies in a general partnership in Texas, their ownership interest will be distributed according to the terms of their will or the laws of intestate succession.
Can I dissolve a partnership in Texas?
Yes, a partnership can be dissolved in Texas by mutual agreement of the partners or by court order.
How is partnership income reported on tax returns in Texas?
Partnership income is reported on a partnership tax return, which is filed with the IRS and the Texas State Comptroller’s office.
Can a partnership in Texas be sued?
Yes, a partnership in Texas can be sued.
Can a general partnership in Texas have employees?
Yes, a general partnership in Texas can have employees.
Are there any annual reporting requirements for general partnerships in Texas?
No, there are no annual reporting requirements for general partnerships in Texas, but the partnership may need to file an annual franchise tax report.
Can a general partnership in Texas be converted to a different entity type?
Yes, a general partnership in Texas can be converted to a different entity type, such as a limited liability company or a corporation.
How are disputes between partners in a general partnership in Texas resolved?
Disputes between partners in a general partnership in Texas are typically resolved according to the terms of the partnership agreement or through mediation or arbitration.
What is the difference between a general partnership and a limited partnership in Texas?
A general partnership has no limited partners and all partners have unlimited liability. A limited partnership has at least one general partner with unlimited liability, but also has one or more limited partners with limited liability.
Do I need a business license to operate a general partnership in Texas?
No, Texas does not require a general partnership to have a license to operate, but the partnership may need to obtain a local business license if required by the local government.
How do I dissolve a general partnership in Texas?
To dissolve a general partnership in Texas, the partnership should follow the requirements set forth in the partnership agreement or file a certificate of dissolution with the Secretary of State.
Are there any filing fees associated with creating a general partnership in Texas?
Yes, there is a fee to file a partnership agreement with the Texas Secretary of State.
Can I sue someone on behalf of my general partnership in Texas?
Yes, partners of a general partnership can sue on behalf of the partnership in Texas.
Can a general partnership have multiple locations in Texas?
Yes, a general partnership can have multiple locations in Texas.
How do I form a general partnership in Texas?
To form a general partnership in Texas, you must file a Certificate of Formation with the Secretary of State.
What information do I need to include in the Certificate of Formation?
You need to include the name of your partnership, the name and address of each partner, and the name and address of your registered agent in Texas.
Can I use a different name for my partnership than the names of the partners?
Yes, you can choose a different name for your partnership as long as it is available and complies with Texas state law.
What is a registered agent?
A registered agent is a person or company that accepts legal and tax documents on behalf of your partnership.
Do I have to have a registered agent in Texas?
Yes, a registered agent with a physical address in Texas is required for all Texas partnerships.
How many partners can a Texas partnership have?
A Texas partnership can have two or more partners.
Do I need a partnership agreement in Texas?
Although not required by law, it is recommended to have a partnership agreement outlining the basic partnership terms.
Can the partnership agreement be oral in Texas?
Yes, an oral partnership agreement is valid in Texas, but a written agreement is recommended.
Can I change the partnership agreement after forming the partnership in Texas?
Yes, the partnership agreement can be changed at any time by all partners’ consent.
What are the tax implications of a Texas general partnership?
Each partner is taxed on their proportionate share of the partnership profits.
Do I need a business license in Texas as a general partnership?
It depends on the type of business you conduct and the location of your partnership.
Can a Texas partnership have limited liability?
No, a Texas partnership does not provide limited liability for its partners.
Are there annual filing requirements for Texas partnerships?
No, there are no annual filing requirements for Texas partnerships.
Do I have to file a DBA with the state of Texas?
No, but you may need to file a DBA with the county clerk’s office in the county where your partnership conducts business under a name that is not the same as the partnership name.
Is there a fee to form a Texas partnership?
Yes, there is a filing fee required to form a Texas partnership.
Can non-residents of Texas form a Texas partnership?
Yes, non-residents of Texas can form a Texas partnership.
Is there a minimum or maximum contribution requirement for Texas partnerships?
No, Texas does not have any minimum or maximum contribution requirement for Texas partnerships.
Can one partner take binding decisions on behalf of the partnership in Texas?
No, decisions of a Texas partnership must be made unanimously, or as otherwise specified in the partnership agreement.
Do partnerships in Texas have perpetual existence?
No, partnerships in Texas dissolve on the death, bankruptcy, or withdrawal of a partner, or upon expiring the term specified in the partnership agreement.
How are disputes between partners resolved in Texas?
Disputes between partners are first handled internally by the partnership. If unresolved, claims may be taken to court.
Is there a residency requirement for partners in Texas partnerships?
No, there is no residency requirement for partners in Texas partnerships.
Can a Texas partnership have employees?
Yes, a Texas partnership can hire employees.
Are partners personally liable for partnership debts in Texas?
Yes, partners are personally liable for partnership debts in Texas.
What happens to partnership assets upon dissolution in Texas?
Partnership assets will be distributed among partners in accordance with the partnership agreement or, in the absence of an agreement, the Texas Uniform Partnership Act.
How do I get started with creating a general partnership in Texas?
Begin by researching state and local laws, filing requirements, and seeking professional advisement.
Can an attorney help me form my Texas partnership?
Yes, hiring an attorney with knowledge of Texas partnership law can help ensure your partnership set up is correct.
How long does it usually take to form a general partnership in Texas?
The processing time varies, but it usually takes two to three weeks.
Is it possible to open a bank account in the name of a Texas general partnership?
Yes, it is possible to open a bank account in the name of the Texas general partnership.

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Conclusion

A general partnership can be viable for individuals looking to establish a business in Texas with shared decision-making, management responsibilities, and profits. This type of business structure is relatively simple to establish and offers flexibility in operations. However, it is essential for potential partners to carefully consider the unlimited personal liability aspect of general partnerships, which means that each partner’s personal assets could be at risk to cover any debts or obligations incurred by the business. Before forming a general partnership, the partners should have a clear and well-drafted partnership agreement that outlines the roles, responsibilities, profit-sharing, and dispute-resolution mechanisms to ensure a smooth working relationship and minimize potential conflicts. Partners should also explore other business structures, like limited liability partnerships or corporations, to determine the best fit for their needs and goals.

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