HOUSTON BUSINESS REVIEW

CYA: COVER YOUR ASSETS! Part 3
By Shahara Wright

Shahara D. Wright, Business Law Attorney, "Serving businesses from start-up through expansion". You can cantact her by: calling her at (281) 980-2040, sending her an e-mail or visiting her website. For more information concerning Shahara Wright click here

. Ideally, if you are going to enter into a partnership, you should have a written agreement which is drafted to accurately reflect the agreement. Sadly, many perspective partners fail to focus on this issue. Sometimes the partners are friends and/or family and believe that there will never be any disagreement. However, it is my experience (as well as most business attorneys) that this belief often leads to disaster. It is always prudent to spend the time and money on a proper partnership agreement that will guide the partners through the good and bad times. A properly drawn partnership agreement will prevent disagreements from getting out of hand and will cut down (if not prevent) costly litigation costs in the end. The time and money that you are willing to spend properly drafting an agreement will well worth it.

General Partnerships are formed by either an oral or written agreement. Based on the foregoing paragraph you already know which I think is best. This entity is relatively inexpensive to form because there is no requirement to file documents on the state level. The partners will have to file an assumed name certificate with the county clerk’s office in the county which it operates business. Much like the sole proprietorship, there is generally no distinction between the partners and the business. Unless there is a written agreement to the contrary, each partner has equal management rights and equal opportunity to run the business. Partners are accountable to each other and to the business. General Partners are equally and severally liable for the debts of the business. This means that there is no distinction between the partners, their personal assets and the business. Everyone is accountable for the business.

Limited Liability Partnerships (LLP) require written agreements. LLPs are filed on the state level and require annual filings with the state. LLPs are good entities for professionals such as lawyers, accountants, and financial advisors. An LLP will limit liability for each individual partner to the extent that he/she is not personally liable. This means that if one partner commits malpractice, the other individual partners will not be held liable. Furthermore, if the partnership is sued and does not have sufficient assets, the individual partners (in most circumstances) will not be held liable. LLPs are expensive to create and require insurance before the filing can take place.

Limited Partnerships (LP) are good entities to bring in investors. Most commonly identified by laymen as “silent partnerships,” a LP will allow a partner to invest money without incurring liability for the company debts. The LP must have at least one general partner that will assume the liability for the partnership. This partner will be responsible for the day to day operations of the company and are solely responsible for the decision making. By contrast, the limited partner cannot be involved in the day to day operations of the company if it seeks to protect its limited liability. The limited partner will be entitled to profits and to be informed regarding the financial position of the LP. The LP is also required to file documents on the state level and requires a written agreement.

Nothing in this article is intended as legal advice and you should consult an attorney before making any decisions.