Even when business partners get along well with each other and succeed, a time may come when they may develop new interests, decide to retire or move elsewhere for business or pleasure reasons. While the Internet and modern communications make it possible to still run businesses with partners scattered around the globe, it’s still quite common for partnerships to break apart or take on new members when others leave.
Do You Need a Written Partnership Agreement in Texas?
Normally, Texas law doesn’t require general (or “at-will”) partnerships to create a written partnership agreement. However, it’s always best to draft one so that when the entity breaks apart (or any partner leaves), you’ll know exactly how to pay off all partnership debts and distribute the remaining assets among everyone.
When general partnerships don’t have an agreement, then Texas law expects the partners to govern their “wind-up” activities in keeping with our state’s default partnership laws.
Here’s a broad overview of the tasks that you and your partners must handle as you dissolve your partnership. Should you have any questions at this early stage, it’s always wise to schedule an appointment with your Houston business law attorney.
First Steps to Take When Preparing to Dissolve Your Partnership
Schedule a meeting so everyone can discuss how your written partnership agreement requires you to dissolve the partnership. During this meeting, you must take a vote to determine if all parties still holding majority rights (or financial interests equal to or greater than 50% of the partnership assets) favor dissolving it. Next, ask this same majority to vote whether they’re ready to draft and sign a written resolution stating that the partnership will now wind up all its affairs and be dissolved.
At this point, all partners who want to keep working together under a new partnership agreement can indicate this desire to everyone else – and offer to buy-out the partnership shares of those who are leaving.
Handling Debt Payments and Winding Up All Remaining Matters
Every current partner should expressly agree to complete certain tasks approved by all those winding down the partnership’s affairs – and to refrain from negotiating any new business that could potentially obligate all partners after the dissolution.
As referenced above, those leaving the partnership are free to sell their shares in it to others, in keeping with their original partnership agreement (or the state’s laws governing such transactions when there is no written agreement). To help the partnership pay off existing debts, all partners can vote on which current partnership assets (if any) may be sold for cash.
The laws governing the pay-off of all partnership debts are set forth in our state’s Uniform Partnership Act. It basically states that you must pay off all your creditors first – before paying back each partner for all past capital contributions to the partnership.
Are There Any Remaining Wind-Up Steps You Must Address?
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