Determining the Existence of a General Partnerships in Texas
General Partnerships in Texas are more common than people think. Individuals in the Dallas / Richardson area that form a business by oral agreement have unknowingly created a general partnership. General partnerships are common when two aspiring entrepreneurs orally decide to start a business and proceed without proper guidance from a lawyer.
The Court will look at five major factors to determine the existence of a general partnership. These factors are:
- Did two or more people express an intent to be partners?
- Did two or more people participate or have the right to participate in control of the existing business?
- Did two or more people agree to share losses or liability for claims by third parties against the business?
- Did two or more people agree to contribute money or other property to the business?
- two or more people share profits of the business?
If the answer is yes to any of these factors there may be a basis for a general partnership. The Court will make the determination of a general partnership on a case by case basis but at least one of the abovementioned factors must be present for the Court to determine that a general partnership exists.
Certain factors will not be considered when a Judge decides to whether a general partnership exists or not. These factors are:
- The right of two or more people to share profits as it pertains to:
a. repayment of a debt;
b. wages or compensation to an employee;
c. payment of rent or interest on a car loan:
d. payment of consideration for the sale of a business or other property:
- The existence of joint or common tenancies; and
- Sharing or possession of a right to share gross receipts.
If circumstances dictate that a general partnership is created between two individuals then certain fiduciary duties and obligations arise between the partners. All partners have a fiduciary duty loyalty and care to the partnership and each other. A breach of this fiduciary duty may give rise to actual, punitive damages, and lost profits.
If you believe that through certain actions you have created a general partnership with a third-party. Please contact Nacol Law Firm to aid you in creating a business entity that will safe-guard your assets and protect you from liability.
Julian Nacol, Attorney
Nacol Law Firm, PC