What are the different types of business partnerships in Texas?

This article looks at the different types of partnership entities available to new businesses in Texas.

When starting a business, choosing the right business entity is one of the first and most important decisions to be made. A partnership is among the most popular business entities and, according to Internal Revenue Service data, there are more than 3.7 million business partnerships in the United States. However, a partnership is not one single entity but is more of an umbrella term to refer to a number of different business structures. Below is a look at three of the most popular types of partnerships in Texas and the differences between them.

General partnership

A general partnership is essentially the most basic type of partnership and the easiest to form. A business that has two or more people working in association for profit can be considered a partnership, with each person referred to as a general partner. While Texas law does not require a partnership agreement to be drafted for a general partnership, it is usually a good idea to have one. That's because, as the Official Website for the City of Austin points out, under Texas law two or more persons may be considered to be in a partnership even if they don't intend to be. If a business relationship resembles a partnership, then those considered partners under the law may find themselves liable for the other partner's debts or mismanagement of the business. A written partnership agreement can help avoid such unwanted surprises.

Limited partnership

A limited partnership is slightly more complicated than a general partnership. In a limited partnership, at least one partner will serve as the general partner and at least one other partner will be the limited partner. The limited partner may have reduced liability exposure compared to the general partner or less of a say in the day-to-day operations of the business. A limited partnership can be governed by either an oral or written partnership agreement. However, because not every partner will have the same role or stake in the business it is best to define what those roles are in a written agreement.

Limited liability partnership

Limited liability partnerships (LLP) are relatively new. As the Houston Chronicle reports, Texas passed the first LLP legislation in the country in 1991. LLPs are typically used by professionals, like dentists, accountants, architects, and attorneys. The main advantage of an LLP is that it provides significant liability protection to the members. However, there are a limited type of businesses that qualify and setting up an LLP entails more paperwork.

Forming a business

Regardless of the business structure chosen, those starting a new business in Texas should seek out assistance from an experienced commercial and business law firm. Having an attorney on hand will ensure that all legal and regulatory requirements are met and that one's business has the best chance for success later on.