| Read Time: 4 minutes | Business Law
dissolve a business partnership texas

Business partnerships come to an end for many reasons, some good and some bad.  Notwithstanding the reason, you and your partners have a legal obligation to dissolve and wind down the partnership business responsibly.

In addition, it’s personally smart for you to wind down the business partnership so as to protect your personal assets and to bring a final and clear conclusion to your obligations to your partners and third parties.

In this guide, we will discuss how to end a business partnership, whether that’s through an existing partnership agreement or without one. 

If you have questions, contact the Texas business law attorneys at Massingill Attorneys & Counselors at Law today.

What Is a Dissolution of Partnership?

To begin, you have probably already noticed that we use the terms “dissolve” and “wind-down” together and also separately. These two terms have distinct legal meanings.

A dissolution of partnership ceases operations, liquidates assets, and terminates the existence of the business entity with the State of Texas.

Winding down a partnership is the procedure within the dissolution process where the responsible parties—in this case, you and your partners—take certain specific steps pursuant to an agreement or Texas statutes to properly, formally, and responsibly bring to an end all your business’s commercial activities.  

Dissolution of a Partnership with an Agreement

If you have a partnership agreement in Texas at the time you decide to dissolve the partnership, then your first step is to consult that agreement.

Almost all partnership agreements address how and under what circumstances the partnership can be dissolved. To give you an idea, the wind-down provisions of a partnership agreement will address:

  • Voting requirements to dissolve,
  • Valuation of the partnership,
  • Method to sell property,
  • How to pay creditors,
  • How to distribute partnership assets,
  • The return of capital accounts,
  • Payment of taxes, and
  • Who is responsible for the wind down.

After consulting the partnership agreement, be sure to review the Texas statutes on dissolving a Texas business.

Finally, even if the partnership agreement provides for dissolution and wind-down, it may be a good idea to draft and execute a dissolution agreement, which we discuss in detail below.

Dissolution of a Partnership Without an Agreement

It is common for there to be no partnership agreement. While this fact complicates matters, it does not necessarily mean that you cannot properly dissolve a business partnership.

At the outset, have a candid and professional discussion with your partners about dissolving the partnership. Texas statutes provide for dissolution by a majority vote.

However, if you are unable to secure a majority vote to dissolve, then you will need to file for judicial dissolution pursuant to Texas law.

For the sake of discussion, in this guide, we will assume that a majority of the partners vote to dissolve the partnership. Upon a vote of dissolution, you should draft and adopt a dissolution of the partnership agreement.

The dissolution agreement will lay out the steps for wind-down and what part of those steps each partner is responsible for.

A well-drafted dissolution of partnership agreement will contain the following provisions:

  • A method to calculate and value the partnership;
  • How to determine when and what to pay each commercial partner or creditor;
  • How much to pay each partner upon dissolution;
  • What specific assets are distributed to particular partners;
  • How to complete unfinished partnership business and terminate partnership contracts;
  • Partner indemnification;
  • Escrow for outstanding liabilities; 
  • Assignment of wind down responsibilities to partners; and
  • Remedies for breach.

While not an exhaustive list, the above represents an orderly dissolution and wind-down of your partnership.

Also bear in mind that if your partnership is a general partnership concluding all commercial business, properly terminating contracts, providing for indemnities, and setting up an escrow is particularly important.

Under Texas law, generally, partners may be liable for a general partnership’s debts even if they are separated from the partnership.

Wind Down Under Texas Law

Even if you have a partnership agreement in Texas or draft and execute a dissolution agreement, it is very important that you also consult the Texas statutes and follow their wind-down provisions.

Texas does not require general partnerships to file Articles of Dissolution. However, Texas wind down statutes generally requires the business to:

  • Cease operations except those that are necessary for wind down;
  • Collect and sell all business property;
  • Apply property and other business assets to satisfy all partnership obligations and liabilities; and
  • Perform any other acts necessary for dissolution.

Note that while the Texas statutes do not require a general partnership to give notice of its dissolution to creditors and commercial partners, we encourage you to do so.

Notifying your commercial partners and creditors is not only the right thing to do but can also provide a defense to any future claim against the partnership or you as a former partner.

Common Pitfalls of Dissolution and Wind Down

The worst thing you can do when you decide to dissolve a partnership is simply turn off the lights and stop answering the phone.

Your partnership was actively engaged in commerce, and it incurred obligations and liabilities.

These obligations and liabilities must be honored, and failure to follow proper dissolution and wind-down procedures can affect your personal assets and your ability to engage in future business ventures or get financing.

This also applies if you have unwilling partners who do not want to dissolve the partnership.

In that case, you will need to involve a Texas court to make sure that your obligations and liabilities are finalized despite the messy partnership status you might leave behind with your other partners.

We Can Help Dissolve Your Partnership

At Massingill Attorneys & Counselors at Law, we’re no strangers to assisting business owners with leaving a partnership—with or without an agreement.

We pride ourselves on representing businesses through their entire life—from inception to dissolution.

In addition, with decades of business law experience, we have the nuanced skills to bring even the most unwilling partners to the table and achieve an orderly wind down.

Contact us today to see how we can help your business.

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