Setting Up a Business Partnership in Texas

Research the different types of partnerships available in Texas (general partnership, limited partnership, limited liability partnership) and determine which structure best suits your business needs. Consider liability protection, tax implications, and management structure. Consult with a business attorney if you're unsure which type is most appropriate for your situation.

Create a comprehensive partnership agreement that outlines the rights and responsibilities of all partners, profit and loss allocation, decision-making processes, dispute resolution procedures, and partnership dissolution terms. This document is essential even though Texas doesn't legally require it, as it prevents future disagreements and establishes clear expectations.

Create a document detailing each partner's initial capital contributions (cash, property, services, etc.), valuation methods for non-cash contributions, and terms for additional capital calls if needed. This agreement should specify if contributions affect ownership percentages and how capital accounts will be maintained.

If forming a limited partnership (LP) or limited liability partnership (LLP), file a Certificate of Formation with the Texas Secretary of State. General partnerships don't require this filing, but LPs and LLPs must register with the state. The filing fee is $750 for most partnerships. Forms can be found on the Secretary of State website.

Apply for an EIN from the IRS, which is required for partnerships even if you don't have employees. This number is needed for tax filings, opening business bank accounts, and other business transactions. Apply online through the IRS website for immediate processing.

If operating under a name different from the legal partnership name, file an Assumed Name Certificate (also called DBA or 'doing business as') with the county clerk in each county where you maintain a business premise. For wider protection, also file with the Texas Secretary of State.

Research and obtain all necessary business licenses and permits required for your specific industry and location in Texas. Requirements vary by industry and municipality, so check with your local city and county governments as well as state regulatory agencies relevant to your business.

If your partnership will sell taxable goods or services in Texas, apply for a sales tax permit through the Texas Comptroller of Public Accounts. Texas requires businesses to collect sales tax on taxable items and remit it to the state. Register online through the Comptroller's website.

Open a separate business bank account for the partnership using your EIN. Keeping business and personal finances separate is crucial for proper accounting and liability protection. Bring your EIN confirmation, partnership agreement, and any filed formation documents when visiting the bank.

Create a buy-sell agreement that outlines what happens to a partner's ownership interest if they die, become disabled, retire, or want to sell their share. This agreement should include valuation methods, payment terms, and funding mechanisms (such as life insurance). This protects all partners and ensures business continuity.

Document day-to-day operational procedures, including partner roles and responsibilities, meeting schedules, communication protocols, and decision-making processes. While some of this may be in your partnership agreement, more detailed procedures help ensure smooth operations and clear expectations.

If hiring employees, register with the Texas Workforce Commission for unemployment insurance and set up new hire reporting. Also register for workers' compensation insurance (optional but recommended in Texas) and ensure compliance with federal employment laws.

Establish accounting procedures that comply with Texas and federal tax requirements. Partnerships must file annual information returns (Form 1065) with the IRS, and partners report their share of income on their personal tax returns. Consider consulting with a CPA familiar with Texas partnership taxation.

Research and purchase appropriate business insurance for your partnership. Consider general liability, professional liability, property insurance, and business interruption coverage. For partnerships where partners have personal liability (general partnerships), adequate insurance is especially important.

Set up a system to track ongoing compliance requirements, including annual report filings (for LPs and LLPs), franchise tax reports, license renewals, and any industry-specific regulatory requirements. Texas partnerships must file an annual Public Information Report with franchise tax reports, even if no tax is due.