How to Create a General Partnership in Texas: A Beginner’s Guide


Steve Goldstein
Steve Goldstein
Business Formation Expert
Steve Goldstein runs LLCBuddy, helping entrepreneurs set up their LLCs easily. He offers clear guides, articles, and FAQs to simplify the process. His team keeps everything accurate and current, focusing on state rules, registered agents, and compliance. Steve’s passion for helping businesses grow makes LLCBuddy a go-to resource for starting and managing an LLC.

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Create a General Partnership in Texas

Forming a general partnership in Texas can be a great way to combine your skills, resources, and ideas to create a thriving business. In Texas, also known as The Lone Star State, general partnerships are relatively easy to establish, making them an attractive option for entrepreneurs who want to keep things simple and cost-effective.

This article will guide you through the essential steps to start a general partnership in Texas. From understanding the legal requirements and drafting a partnership agreement to registering your partnership and obtaining necessary permits, we’ll provide you with the necessary tools and insights to help you launch your business venture. Whether you’re opening a boutique retail store or a cutting-edge tech startup, this comprehensive guide will help you navigate the process of starting a general partnership in Texas.

What is General Partnership In Texas

It is a business structure where two or more people come together to form a jointly owned business. In the general partnership business, the partners agree upon sharing assets, responsibilities, profits, and liabilities (legal & financial). In a general partnership, Partners consent to carry potentially unlimited liability personally. Liabilities are not restricted as they would be, for example, in a limited liability partnership (LLP) or a limited liability company (LLC) structure. Unlike the LLCs, a partner, in this case, can be legally sued for any business debts, and a possibility of seizure of personal assets can occur.

Before you start setting up your general partnership, it is advised that you consult a legal person. They will know what is best for you and your business. You can always form an LLC instead of a general partnership to protect your personal assets from business debts.

LLCBuddy Editorial Team

How to Create a General Partnership in Texas

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

Step 1: Choose a Business Name in Texas

Naming your business is one of the most crucial activities during the startup phase. Your general partnership name is the foundation for your brand in Texas 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.

If you want to set up an LLC, there is a complete guide on Texas LLC name guidelines for a proper business name. Here are some guidelines you must follow while naming your general partnership-

  • Name availability: The name should be available, and no other entity should have the same name in Texas.
  • Trademarks
  • Limit of restricted words that need a license in Texas

In Texas, if you register your general partnership business with the Texas Secretary of State, then the name you choose will be the company’s official name. On the contrary, unregistered general partnership businesses use the last name of all of their partners by default. For instance, if Selena Gomez and Hailey Beiber enter business together, the partnership name is “Gomez & Bieber” by default if unregistered. 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 “Doing Business As (DBA)” name with Texas SOS.

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 with the SOS 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 legal contract that specifies how a for-profit company would operate when run by two or more people.

The partnership agreement specifies each partner’s roles within the company, their ownership stakes, and their share of profits and losses. 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:

  • Name of Partners
  • The principal address of the partnership
  • Purpose of the partnership
  • Terms of the partnership
  • Partnership start date and end date (if not for infinite time)
  • Partnership dissolution terms (for finite partnership)
  • Capital contribution of partners
  • Share of Interest of Partners
  • Profit distribution of partners (equal distribution by default, if not specifies any special condition)
  • Salary distribution (if applicable)
  • Partnership Management Terms
  • Terms of Partnership Sale

These key factors must be considered when forming or creating a partnership agreement in Texas. In this way, all business partners will understand what this is about and how to proceed if the mentioned scenarios happen in Texas.

Without a Partnership Agreement, your company will often be subject to the general partnership default laws of Texas. The default laws in Texas might not be appropriate for your requirements. Hence, it is important to have a transparent agreement while forming a partnership.

Step 3: Request an EIN in Texas

After documenting the partnership agreement, you should get or request an Employer Identification Number (EIN). An EIN will serve as the tax ID for your general partnership. EIN can be obtained from the Internal Revenue Service (IRS). It is a 9-digit number similar to Social Security Number. EIN, however, is distinct from SSN. It is only used for business-related activities, particularly for submitting general taxes. The form must be completed and uploaded to the IRS website. Getting EIN is necessary whether you are opening an LLC in Texas, or a general partnership, or something else.

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

  • Apply Online- You can apply for EIN online, which is the most desirable and fastest method for users.
  • Apply by Fax- Another method of obtaining EIN is to fax Form SS-4 (PDF) after entering all the correct information to (855) 641-6935.
  • Apply by Mail- The EIN application Form SS-4 can be filed via mail. The processing time frame to receive the mail is 4 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.

After you have your EIN number, you can benefit in several ways. It will provide your general partnership with the final advantage necessary to operate fully without encountering legal or judicial issues. For more details about EIN for your business, you may check why you need EIN.

Step 4: License and Permit for General Partnership in Texas

Before your general partnership business operates in Texas, you must have a business license first. A business license is a document issued by a government agency that permits you to operate your business in the geographic region that that agency governs.

To legally operate your partnership, you must apply for a business license to Texas Secretary of State. In some states, you might need to obtain a Privilege License. Based on the business structure, you might need it. In Texas, partnership businesses do not need to get to obtain a privilege license. You might even need more than one license in Texas. Numerous general partnership licenses need to be filed and renewed regularly.

Step 5: Obtain Texas Tax ID Number

In Texas, to conduct a business, you must comply with the Texas Comptroller of Public Accounts. If you have a general partnership in Texas, you must obtain the Texas Tax ID number from Texas Comptroller of Public Accounts. Your partnership business must pay state taxes (if applicable).

Step 6: Open a Bank Account

Once you have filed and received your general partnership license, you should now open a bank account since you will use this account for yourself, your clients, and your employees.

Your business dealings in Texas might be simpler with a US business bank account because it boosts your company’s legitimacy and liquidity. Most banks demand an EIN for creating a business bank account for firms other than sole proprietorships. Also, keeping separate finances helps you avoid combining personal and professional finances.

Example of General Partnership in Texas

Individuals looking to collaborate and numerous kinds of 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
  • Business Consulting

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

Important Information

Maintaining Business License in Texas

Now that you have established your general partnership, you must maintain or renew your business license every now and then. Make time to check the status of your licenses at least once per year. Then, you can keep from missing anything significant. If there are any issues, you can address them.

Paying 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 tax information will help you with what to pay before or during the operation of your professional corporation. You must check with Texas Comptroller of Public Accounts for more details.

Advantages of General Partnership in Texas

  • Foundation only requires two people: Forming a general partnership doesn’t need many people to operate. You can form a general partnership with a partner in mind and a business plan. It can be a group of friends or colleagues, a family member, or a spouse and wife partnership.
  • Equal Rights: Everyone is granted equal rights when a business is founded using a general partnership; each partner is free to express their ideas and choose what is best for the company’s success.
  • Management Option: One of the advantages of joining a general partnership is the opportunity to select the finest management options for the company. For this reason, large partnerships should draft an agreement describing each partner’s responsibilities inside the business. As a result, each partner’s leadership abilities are enhanced.
  • Flexibility: General Partnership is the basic form of a business structure since it can be converted into any business entity, such as LLC. If you have flexibility in applying for an LLC in Texas, you will have default rules set by law, and you need to have an operating agreement for this.
  • Pass-through taxation: The pass-through tax structure will make the general partnership business not pay twice the tax. Due to this structure, most start-ups and entrepreneurs in Texas apply for a GP or LLC. And one of the main advantages of a general partnership is that partners don’t have to pay for the losses collectively.

FAQs

What is a General Partnership in Texas?
A General Partnership in Texas is a business structure where two or more owners share all aspects of the business, including profits and liabilities.
What are the benefits of forming a General Partnership in Texas?
There are numerous benefits to forming a General Partnership in Texas, including the ability to pool resources, share liabilities, and offer tax advantages.
What are the requirements to form a General Partnership in Texas?
Generally, to form a General Partnership in Texas you must have two or more individuals who are willing to share in the business’s profits and liabilities. Additionally, you must file the necessary paperwork with the Texas Secretary of State.
Do I need to file a DBA when forming a General Partnership in Texas?
Yes, if you plan to do business under a name other than the legal name of the General Partnership, you must file a DBA with the Texas Secretary of State.
Do I need to register for taxes for my General Partnership in Texas?
Yes, you must register for state and federal taxes and obtain an EIN from the IRS.
Do I need to register with the Texas Workforce Commission?
Yes, if you plan to hire employees you must register with the Texas Workforce Commission and obtain an Employer Identification Number.
Are there any other state agencies I need to register with?
Depending on the type of business you are running, you may need to register with additional state agencies, such as the Texas Department of Agriculture or the Texas Department of Insurance.
How do I dissolve a General Partnership in Texas?
The process for dissolving a General Partnership in Texas depends on the terms of the partnership agreement. Generally, the partners must agree to dissolve the partnership and file the necessary paperwork with the Texas Secretary of State.
What are the laws for taxation on a General Partnership in Texas?
Generally, a General Partnership in Texas is taxed as a pass-through entity, meaning the business’s income is reported on the individual partners’ tax returns. However, there are certain circumstances where the partnership may be subject to corporate income taxes.
What documents do I need to form a General Partnership in Texas?
Generally, you need to draft a partnership agreement and file the necessary paperwork with the Texas Secretary of State, such as a Certificate of Formation or Statement of Partnership Authority.
Are General Partnerships in Texas required to have liability insurance?
Generally, while not required, it is recommended that General Partnerships in Texas obtain liability insurance to protect the partners from any potential liabilities.
Do General Partnerships in Texas need to have an employer identification number?
Yes, General Partnerships in Texas must obtain an Employer Identification Number (EIN) from the IRS.
Do I need a business license to operate a General Partnership in Texas?
Generally, you do not need to obtain a business license to operate a General Partnership in Texas. However, depending on the type of business you are running, you may need to obtain additional licenses or permits.
What is the difference between a General Partnership and a Limited Partnership in Texas?
The main difference between a General Partnership and a Limited Partnership in Texas is that in a Limited Partnership, one or more partners (called “limited partners”) are not personally liable for the debts of the partnership.
Are the terms of a General Partnership in Texas binding?
Yes, the terms of a General Partnership in Texas are legally binding and are enforceable in court.
Are there any restrictions on the types of businesses that can be formed as a General Partnership in Texas?
Generally, there are no restrictions on the types of businesses that can be formed as a General Partnership in Texas.
Is it possible to form a General Partnership in Texas with only one partner?
No, General Partnerships in Texas must have at least two partners.
What is the legal age to form a General Partnership in Texas?
Generally, in Texas, the minimum age to form a General Partnership is 18 years old.
Can a foreign national form a General Partnership in Texas?
Yes, foreign nationals can form a General Partnership in Texas, as long as they fulfill the necessary requirements.
Is it necessary to have a written partnership agreement for a General Partnership in Texas?
Yes, it is highly recommended that all General Partnerships in Texas have a written partnership agreement outlining the rights and responsibilities of the partners.
Are there any rules I need to follow when naming my General Partnership in Texas?
Yes, General Partnerships in Texas must abide by the naming rules set forth by the Texas Secretary of State. Generally, the name must include the words “Partnership” or “Cooperative” and cannot be misleading.
Are General Partnerships in Texas required to hold annual meetings?
Generally, General Partnerships in Texas are not required to hold annual meetings. However, it is recommended that the partners meet at least once a year to discuss the business.
Can a General Partnership in Texas be held liable for the debts of its partners?
Yes, a General Partnership in Texas can be held liable for the debts of its partners.
Is it possible to transfer ownership of a General Partnership in Texas?
Yes, it is possible to transfer ownership of a General Partnership in Texas, as long as all partners agree to the transfer.
Are General Partnerships in Texas required to file annual tax returns?
Generally, General Partnerships in Texas are not required to file annual tax returns. However, each partner must report their share of the partnership income on their individual tax returns.
Is it possible to form a General Partnership in Texas without an attorney?
Yes, it is possible to form a General Partnership in Texas without the help of an attorney. However, it is recommended that you consult an attorney to ensure that you are in compliance with all state and federal regulations.
What happens if a partner dies in a General Partnership in Texas?
Generally, the partnership agreement will determine what happens in the case of a partner’s death. Generally, the remaining partners will assume the deceased partner’s interest in the partnership.
Can a General Partnership in Texas sue or be sued?
Yes, a General Partnership in Texas can sue or be sued in court.
What happens if one partner fails to contribute to the General Partnership in Texas?
Generally, the partnership agreement will determine what happens in the case of a partner’s failure to contribute. Generally, the other partners can sue the offending partner in court to recoup their losses.
What are the steps to set up a General Partnership in Texas?
The steps to set up a General Partnership in Texas include selecting a business name, filing a Certificate of Assumed Name with the county clerk, obtaining any necessary registrations or licenses, creating a partnership agreement, obtaining an Employer Identification Number (EIN), and filing the necessary paperwork with the Texas Secretary of State.
Are partners personally liable for the debts of the partnership in Texas?
Yes, in a General Partnership in Texas, all partners are personally liable for the debts, obligations, and liabilities of the partnership.
What paperwork needs to be filed with the Texas Secretary of State to set up a General Partnership?
The paperwork that needs to be filed with the Texas Secretary of State to set up a General Partnership is a Certificate of Formation.
What is the filing fee for a Certificate of Formation for a General Partnership in Texas?
The filing fee for a Certificate of Formation for a General Partnership in Texas is $300.

Also Read

Why Create General Partnership Texas is So Important

One of the key reasons why creating a general partnership in Texas is so important is the ease and flexibility it offers to individuals looking to start a business or partnership. Unlike other business structures that involve complex procedures and legal requirements, forming a general partnership in Texas is relatively simple and straightforward. Partners can come together and start their venture without the need for formal agreements or complicated legal documents. This simplicity enables partners to focus on their business rather than getting stuck in bureaucratic procedures.

Additionally, general partnerships in Texas allow partners to share both profits and losses in a transparent and equitable manner. This means that partners are not only able to pool their resources and talents but also share the risks and rewards of their venture. This shared responsibility encourages partners to work together towards a common goal and establishes a sense of trust and collaboration among them.

Furthermore, creating a general partnership in Texas provides partners with a high degree of autonomy and control over their business. Unlike corporations where decisions are often made by a board of directors or shareholders, in a general partnership, partners have the freedom to make decisions collectively and implement their vision for the business. This level of autonomy fosters creativity, innovation, and agility, allowing partners to adapt quickly to changing market conditions and trends.

Another critical aspect of why creating a general partnership in Texas is important is the tax advantages it offers to partners. In a general partnership, profits and losses flow through to the individual partners, who report them on their personal tax returns. This pass-through taxation structure often results in lower tax liabilities for partners compared to other business structures like corporations. This tax advantage can be a significant motivator for individuals looking to start a business or partnership in Texas.

Moreover, general partnerships in Texas provide partners with the opportunity to leverage each other’s networks, experiences, and resources. By pooling their strengths, partners can overcome individual limitations and tap into a broader range of skills and expertise. This collective effort can lead to synergies and efficiencies that would not have been possible for each partner working alone.

In conclusion, creating a general partnership in Texas is essential for fostering entrepreneurship, collaboration, and innovation in the state. The simplicity, flexibility, autonomy, tax advantages, and collaborative opportunities offered by general partnerships make them an attractive option for individuals looking to start a business or partnership. As Texas continues to be a hub for business and innovation, general partnerships will play a vital role in driving the state’s economic growth and prosperity.

Conclusion

In conclusion, starting a general partnership in Texas may effectively combine resources, expertise, and creativity to achieve your mutual business goals. By understanding the legal requirements, drafting a thorough partnership agreement, and registering your partnership, you’ll be well on your way to a successful collaboration. As you embark on this exciting journey, remember to maintain open communication and stay committed to the shared vision that inspired your partnership in the first place.

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