If you are contemplating starting a business with a friend or family member, consider forming a partnership agreement. This allows you to shield yourself from personal liability for business debts or avoid double taxation, which is a hallmark of corporations.
The most important point to remember is that you need to reduce your partnership agreement to a written document. While you trust and respect your partner, oral agreements can devolve into conflict over time. The attorneys at Begum Peláez-Prada PLLC could help you explore the best types of partnership agreements in San Antonio for your specific needs.
General partnerships (GP) consist of two or more partners forming a for-profit business, with each partner equally responsible for the company’s debts. The income is treated like the owners’ personal income for tax purposes. A written GP agreement allows partners to allocate debt and profit in any combination they choose. San Antonio does not require a general partnership agreement to be in writing. However, if it is not and one partner contributes considerably more start-up capital and effort than the others, income will flow unequally and unfairly.
General partners do not have to register the company with the Texas Secretary of State, but if you operate under a business name, it must be filed with the Assumed Business Name Registry.
A limited partnership (LP) is made up of general partners and limited partners. Limited partners are only responsible for company debts up to the amount of their investment, while general partners run the day-to-day operations and can individually be liable for all the company’s debts. The company’s income is passed to the partners as personal income, avoiding double taxation.
To establish an LP, the company is required to file a Limited Partnership Certificate of Formation and pay state franchise taxes. Award-winning San Antonio legal professional Sasha Begum could explore whether a general or limited partnership agreement is right for your business and work with you to meet the requirements.
You do not have to register general partnership agreements with the state. However, if you and your partners already operate a general or limited partnership, you are eligible to register it as a limited liability partnership (LLP), shielding you from the company’s debts and lawsuits. Franchise taxes apply. The LLP designation is common for many professionals, such as attorneys, physicians, architects, dentists, and accountants. LLPs must carry at least $100,000 in liability insurance.
The newest designation for partnerships is the limited liability limited partnership (LLLP), in which general partners—who are jointly and severally responsible for the debts of the partnership—can transfer the obligation to an insurer. Limited partners remain liable only up to their investment amount, and franchise taxes apply. Not all states authorize the formation of LLLPs, but Texas does.
To learn more about the types of partnership agreements and which best suits your situation, contact the San Antonio lawyers at Begum Peláez-Prada PLLC today.
If you are forming a partnership, your agreement should be clear and consistent. There are several types of partnership agreements in San Antonio—general, limited, limited liability, or limited liability limited—but you do not need to choose alone. Our team is dedicated to keeping you apprised of all aspects of the legal work we provide for you. Call us today to get started.
