Do General Partnerships Need To Register In Texas

How to Start a Partnership in Texas

If y'all're starting a business in Texas you demand to determine on the business structure you'll operate under. For most Texas businesses with 2 or more than owners, the option is between a partnership, LLC or Corporation. In this article, nosotros'll go over the pros and cons of forming your business as a general partnership and how to first a partnership in Texas.

Starting a Partnership in Texas Table of Contents:

What is a Full general Partnership?
How to Start a Partnership in Texas:
1. Choose a Business Name for your Partnership
2. File a Texas Partnership Assumed Name
3. Create a Partnership Agreement
4. Become Business Licenses and Permits
5. Obtain an EIN
6. Open up a Business organisation Bank Account

What is a Texas General Partnership?

A general partnership is the easiest and most simple form for businesses with two or more owners. A general partnership can exist started in Texas without whatsoever formal registration with the land, outside of required business organisation licenses and taxation-related filings applicable to all businesses.

The lack of whatsoever legal formation paperwork to get started is the master reward that general partnerships offering compared to a Texas LLC or corporation. LLCs and corporations crave legal paperwork to be filed with the Texas Secretary of State to exist formed forth with a land filing fee. While partnerships are easier and cheaper to get started than LLCs or corporations, Texas business owners should also consider liability protection and taxation.

Liability Protection

One of the main areas that a business concern owner should keep in mind when choosing their business construction is their personal liability take a chance. In a full general partnership, all partners are subject to unlimited liability risk. This means that if their business is sued or has outstanding debts, their personal assets like their savings, habitation, or car could be used to pay off the debts. This is a significant disadvantage of general partnerships compared to a Texas corporation or LLC. LLCs and corporations are recognized as separate legal entities from their owners, and as a result, they provide limited liability protection for their owners.

Taxation

Partnerships are not subject to corporate tax and are treated as a pass-through taxation entity. This means that the business organisation itself is non responsible for paying taxes; instead, the business organization' profits are passed to the owners, who and then pay tax on those earnings on their personal tax returns. Past default, multi-member LLCs are treated the aforementioned as a partnership for taxation purposes. The pass-through tax of partnerships and LLCs can let for a lower overall amount of taxes to exist paid when compared to a corporation. Corporations are subject to "double-taxation" by default. They must first pay corporate taxes earlier distributing profits to their owners, who then must also pay taxes on that distributed income.

With this being said, LLCs have a unique advantage over partnerships as they take the flexibility to elect for either S Corporation taxation treatment past the IRS. This tin can permit a qualifying LLC to save a sizeable amount of money by reducing the business' self-employment tax liability. Thus, partnerships lack this power and are bailiwick to the maximum self-employment tax liability.

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If you want to acquire more about the differences between LLCs and Partnerships, read our LLC vs Partnership comparison guide.

How to Start a Partnership in Texas

If you have chosen to kickoff your business as a full general partnership, at that place are six steps that y'all'll need to take to form a partnership in Texas.

1. Cull a Concern Name for your Partnership

As a general partnership in Texas, you lot'll need to choose a business organization name. By default, Partnerships will need to use the partners' last names in the concern name. You'll often see professional person trades like lawyers using names like this, such as "Smith, Williams and Partners". However, this is not ideal for many businesses as they don't follow the basic rules for a good business name, as we comprehend in our How to Come up with a Business organization Name guide.

Luckily, partnerships can cull to get a Texas DBA proper name, formally known as an Assumed Name. While your Texas Assumed Proper name is not required to be unique, it'south a best exercise to make certain that your proper name is unique to brand sure you aren't getting dislocated with other businesses. You can ensure that your desired proper name is not in apply past searching these government databases:

Texas Taxable Entity Search
USPTO Trademark Search

Exterior of these government databases, it's also highly recommended that you conduct a website domain proper name search to ensure that the .com version of your business proper name is available for registration. Since online searches are one of the chief means, people will find your business, having the .com version of your business name is the easiest way to ensure your all-time chance of showing up beginning when people search your proper noun. You tin register a domain for $8.88 with namecheap (every bit compared to $11.99 with GoDaddy), so even if you don't plan on creating a website, y'all lock in your domain and so no one else can utilise information technology.

two. File a Texas Partnership Assumed Name

Later on you have verified your concern name is bachelor, you lot'll need to file your Assumed Name Certificate. In Texas, your Assumed Proper name will need to be filed with the local county clerk'south office.

If you would like assistance, yous can employ a third-political party filing service to consummate your DBA/Causeless Proper noun filing. Using a filing service tin can help to ensure that your Assumed Name application is completed correctly and has the highest chances of being approved on the first attempt.

3. Create a Partnership Understanding

While information technology's not a legal mandate, you should create a partnership agreement. A partnership agreement is a contract that defines many of the important items about the partnership'southward operations and the relationships between the business partners. This includes:

Ownership percentages
How profits will be distributed
The managerial powers and responsibilities of each partner
How the partnership can be terminated
How partnership tin can go out or have their buying bought out

Without a partnership agreement, you could end upward with major disputes that can destroy a business. If y'all don't have a partnership understanding, a judge could end up deciding the fate of your business, all because a formal understanding was not completed when the business organization was started.

four. Get Business Licenses and Permits

Most partnerships volition take at least one or more business organisation licenses or permits that they'll need to operate legally in Texas. The types of business licenses or permits you will need are highly dependant upon the nature of your business organisation. A total list of all Texas state-level business licenses and permits, which can be found here.

The most common types of business licenses and permits needed in Texas include:

Sellers Permit
Fire Department Permit
Sign Permit
Wellness Department Allow
Metropolis and/or County Business organisation License

If your business activity is federally regulated yous may need to obtain a license or permit from a federal agency. A full list of federal business concern licenses and permits can exist found at SBA.gov.

Since the business organisation licenses and permits your Texas partnership will need can vary widely based on the activities of your business, yous may want to buy a business license and permit research parcel. This can help ensure that you go all the business licenses and permits required for your specific situation to exist legally compliant.

5. Obtain an EIN

If you lot operate your Texas business as a partnership, yous must obtain an EIN from the IRS. EIN is an acronym for Employer ID Number, which is sometimes referred to every bit a Federal EIN, FEIN, Tax ID, or IRS Taxation ID. EINs are a nine-digit ID number issued by the IRS for tax reporting and come in the format Xx-XXXXXXX. You can apply for an EIN online for free using the IRS' EIN Banana.

Once you accept completed your EIN application your EIN will be issued immediately. Be sure to save your EIN confirmation alphabetic character PDF after the EIN is issued equally this will exist required to open your business bank account.

Related: What is an EIN

6. Open a Business Bank Account

In one case you have registered your partnership's Assumed Proper noun and obtained an EIN, you can open a business bank business relationship. Opening a business concern banking concern account helps keep your concern and personal transactions separate, making your bookkeeping and accounting much easier. To open a business banking concern account, you'll want to schedule an date with your bank of option and take the required documents with you, including: