How to Dissolve a Partnership in Texas
Knowing how to dissolve a partnership in Texas will ensure you do it correctly.3 min read
Knowing how to dissolve a partnership in Texas will ensure you do it correctly. It can be confusing, especially since Texas doesn't have the same partnership law as other states. When you end your business partnership, there are various tasks that must be completed first. You may have decided it's time to change your career, retire, or shut down your business. You might not be able to agree on where the company is headed or how it should be managed. Maybe your children don't want to join the family business. No matter what the reason, it's time to dissolve it.
Steps for Dissolving a Partnership in Texas
The first step you must take when you dissolve your partnership is to look at your agreement. It's not mandatory to have a written agreement in Texas, but it's smart to prepare one when the partnership is first created. If you don't have a pre-existing document like this, you'll need to refer to the default provisions for the partnership laws in Texas. You'll also need to discuss dissolution, including how you'll pay off any outstanding debts and how any assets will be divided among the remaining partners.
This is the advantage of having an agreement already written out, as it will give you guidance on how to address these issues. It may be as simple as following exactly what's in the agreement if it was well-written. Sometimes there are cases where you'll need certain partners to pay specific debts, which won't be covered in your agreement. You'll want to agree on that and put it in writing at this time.
Take a Vote or Action to Dissolve
The majority of dissolution provisions require most partners to give consent on the dissolution first. This means all partners need to vote on the dissolution and ideally, all or the majority will give their consent. The results of the vote must be written down. If the partnership is dissolving because of the partners disagreeing on a topic and not everyone wants the dissolution, there are several options, including:
- The previous agreement may have the answer and state options for partners who want to leave.
- An independent mediator can be brought in to resolve the disagreements.
- If these options don't work, you'll need to take it to court so a judge can decide how to proceed with the dissolution.
It's preferred to not go to court, but sometimes there are no other choices. If you need to do this, make sure all partners are represented by lawyers. In the case of no previous partnership agreement existing, you'll need to rely on the partnership laws of Texas. They normally state that dissolving a partnership means the majority-in-interest (which means they own at least 50 percent of the interest) needs to give their consent.
This requirement can be met by most of the current partners voting in favor of a resolution that will wind up the partnership. Sometimes the partners who are remaining can continue the partnership once the others leave. This would only be true if there isn't an agreement discussing how the partnership should be dissolved.
Pay Debts and Distribute Assets
After the vote has taken place to dissolve the company, there will be a few other steps to take to close it down completely. These include:
- Finishing any partnership work that's still going on
- Selling all or some assets
- Paying off any debts
- Distributing leftover assets to partners
It's crucial that all debts are paid in full before the partners receive their distributions. Texas's Uniform Partnership Act sets the rules for how people get paid when a partnership is ending. The creditors are paid in full, followed by the partners getting back their capital contributions, and then the partners get distribution if anything is left.
Each partner must agree to finish specific tasks as the partnership is winding down. They must not negotiate any new business that would possibly obligate the partners after the dissolution. Anyone who is leaving the partnership can sell their shares to other people, as long as they follow any rules that were set in the initial partnership agreement.
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