Forming a Legal Partnership in Texas

February 17th, 2015

A partnership is an association of two or more people or entities that carry on as co-owners of a business for profit. Many people believe that formal paperwork is required to set up a business and begin, but this is not necessarily the case. A legal partnership in Texas may be created by written document, orally, or may be implied through the actions and conduct of two or more individuals and entities.

In Texas, the creation of a Partnership may be determined by the totality of facts and circumstances. Such circumstances are:

  1. Sharing ownership in property (tenancy in common, joint tenancy, tenancy by entireties)
  2. Sharing of gross income and debt obligations
  3. Sharing of profits
  4. The specific intent of each individual within the partnership

These factors must be taken into consideration to determine if there is in fact a legal partnership. It is advisable to engage an attorney to help create a written partnership agreement that sets out specifically the powers, rights, and duties vested in each partner before commencing operations in a new business.

Partnership statutes in Texas give broad flexibility for each partner to create a partnership agreement that best accommodates their interests and the relationship. A written partnership agreement is essential when going into business with another individual. The partnership will govern the nature of the relationship for all the partners and the power each has over the partnership. Without a partnership agreement, a partnership rights and duties will default to the discretion of Texas statutes.

There are a few key characteristics of partnership to keep in mind if you wish to establish a partnership in Texas. First, there is no personal liability protection when forming a partnership. Second, all of the partners may be subject to joint and several liability if sued. This means that if an individual sues a partner in the partnership but that partner has no money, then the individual may rightfully sue any of the other partners in that partnership to be compensated. Of course the lawsuit should be primarily directed at the partnership, but the important point is that all partners may be joined and will additionally be at risk for liability. Third, the profits and losses flow directly to the individual partners’ incomes. The partners directly receive the profits and losses. Fourth, a partnership itself does not pay taxes. Do not mistake a partnership with a corporation. A partnership will not have to pay a separate corporate tax which may be a tax benefit for a startup business.

It is important for each individual who wishes to start a partnership to sit down with a lawyer and create a detailed partnership agreement. This protects the interests of all the partners involved. The partnership agreement, if done correctly, should address any potential ambiguity and allocate specifically the rights and powers to each of the partners. It is hard at times for clients to foresee problems that could arise when co-owning a business as partners. This is why you should clearly set out each of the partners’ intentions, obligations, and rights in a written document that will govern the partnership terms.



No Texas Will

February 8th, 2015

It is difficult to contemplate one’s mortality.  Life can be fleeting and one must prepare for not only their interests but for their family’s interest as well.  By creating a will you may ensure that your assets are inherited by the people of your choosing rather than the state’s idea of what is proper.

To die without a will is to die “Intestate”.  This means that the State (Texas) will determine the percentage of property that each family member will inherit after an individual dies.

An individual’s “property” is defined in two categories in regard to property of a husband and wife.

1.) Separate Property: (Texas Family Code§ 3.001) A spouse’s separate property consists of:

(a) The property owned or claimed by the spouse before marriage

(b) The property acquired by the spouse during marriage by gift, devise, or descent

(c) The recovery for personal injuries sustained by the spouse during marriage, except any recovery for loss of earning capacity during marriage.

2.) Community Property: (Texas Family Code § 3.002)

(a) Community property consists of the property, other than separate property, acquired by either spouse during marriage.

The difference between separate and community property is significant when discussing inheritance. If a husband or wife dies without a will then the property will be divided differently depending on whether the property in question is community or separate property.

If a person dies leaving children from his or her marriage then his spouse will receive all of the community property. If there is a child or children from the deceased that have no relation to the surviving spouse, then the surviving spouse will receive ½ of the community property and the non-related child as well as the related children will receive the other half divided equally among themselves. Tex. Estate Code Ann. § 201.003 (West)

If a person dies leaving children from his spouse, or with children of no relation to the spouse, the separate property will be divided as follows: the spouse will receive 1/3rd of the separate property, and the children of relation will receive 2/3rds of the separate property to be dived equally among themselves. The spouse will also receive 1/3rd of the real property (land) in life estate with a remainder going to the related and unrelated children. This means that the spouse will only receive 1/3rd of the land for her/his lifetime then it will be equally divided between all the related and unrelated children equally. The other 2/3rd of the land will be equally divided between all the related and unrelated children when the individual dies.

Real Property has other exceptions and the Homestead Statues must be consulted if a Homestead is involved. If there are no children then the spouse will receive all of the separate property. (Tex. Estates Code Ann.§  201.002 (West)).

This is a general overview of the laws for an individual who does not create a will before he/she dies. The Intestate Statutes in Texas attempt to make an amicable inheritance of an individual’s property that will prove to be fair and just for the majority of the State’s citizens. These Intestate Statutes are automatic and non-negotiable. If you wish to leave your assets and property to specific family members or non-related people, then you must have a will. A will gives you, not the state, the power to dictate how your property will pass when you die. Take some initiative and meet with an attorney so you can confirm and assume your specific desires are met upon death.

Verbal Contracts and Texas Law

January 26th, 2015

Verbal Contracts do exist and are legally enforceable in Texas,  as a matter of law,  if they meet necessary legal requirements and specificity. Adequate consideration must be given between the two parties of a verbal contract to make it binding. Adequate consideration is defined in two ways: (1) having a mutual reciprocal exchange [bargained for exchange] or (2) having legal value [an individual must do something that he is not legally obligated to do]. If adequate consideration is given between both parties and all other legal requirements are met, then a verbal contract may be held valid in a court of law.

Verbal contracts are also limited by the Statute of Frauds. The Statute of Frauds requires certain types of contracts to only be in writing purportedly to avoid defrauding citizens.

The following must be in writing:

This Nacol Law Firm Blog is in the Top 10 Blog Posts on Texas Bar Today

This Nacol Law Firm Blog in listed in the Top Ten Blog Posts on Texas Bar Today!

(1)  Making a will or Trust

(2)  A contract to answer for the duty of another (Guarantee/Suretyship)

(3)  Marriage (exception common law marriage)

(4)  Sale and contracts affecting Land

(5)  A contract that lasts longer than 1 year from the time it is made and which cannot be performed in one year

(6)  Any sale of goods for a price of $500 or more

(7)  Sales of securities

Verbal contracts in Texas have limitations. Let’s say that a contractor wanted to paint the outside of your house. You decide to pay the contractor seven thousand to paint the outside of the house and the job will take approximately 3-8 weeks. If you have a verbal contract with the painter and pay him this could be legally enforceable in a court of law. The verbal contract with the painter is not invalidated by any provision set above in the Statute of fraud. It is a contract for service, under one year, and adequate consideration has been given with the payment of seven thousand dollars.

Here is another example of a verbal contract that will not be upheld in a court of law. An individual buys fifty acres from his neighbor for fifty thousand dollars under a verbal contract. Before the fifty thousand dollars is exchanged, the neighbor decides to pull out of the deal. This verbal contract would not be enforceable in court and the buyer cannot enforce the contract because it deals with real estate (land).  This is one of the specific types of contracts that must be in writing because of the Statute of Frauds. The individual may get his money back but the point is he cannot enforce the contract since it is not in writing.

The best course of action in the litigious world we live in is to cover your tracks by securing a written contract in almost all circumstances. Do not rely on the limited options that allow a verbal contract to be enforced because in court you will have to deal with the “He said, she said” testimony and incur significant cost of litigation unnecessarily.

Serving clients throughout Texas, including Collin, Dallas, Denton, Ellis, Grayson, Kaufman, Rockwall and Tarrant counties and the communities of Addison, Allen, Arlington, Carrollton, Dallas, Fort Worth, Frisco, Garland, Grapevine, Highland Park, McKinney, Mesquite, Plano, Richardson, Rowlett and University Park, Murphy,Wylie, Lewisville, Flower Mound, Irving, along with surrounding DFW areas.