Steps Required to Dissolve a General Partnership in Texas

Steps Required to Dissolve a General Partnership in Texas

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?

  • Paperwork filing with the state. In Texas, there’s no need to file anything when dissolving an at-will (general) partnership;
  • Providing notice to all creditors, customers and other parties. It’s customary to send out notices through the mail to all your business contacts so they’ll know that your partnership is being dissolved as of a certain date. However, there’s no law which requires this to be done. You can also just simply publish a notice about the dissolution in your local newspaper;
  • Updating all out-of-state registrations. To prevent your partnership from owing any more fees to other states where you’ve registered for the right to do business, you need to formally notify the correct offices via certified mail that you’re dissolving your partnership;
  • Paying all taxes that are owed. Although Texas doesn’t require you to obtain a tax clearance before winding-up your partnership, you must make sure all taxes owed have been paid before dissolving it. This step includes filing a final federal tax return for your partnership in keeping with Texas law.

Should you have any specific questions about dissolving your partnership – or making sure that you’re handling all tax matters properly – please contact our law firm so we can provide you with all pertinent legal advice.

An Overview:  Winding Up Texas Corporate Activities

An Overview:  Winding Up Texas Corporate Activities

Corporate officers can choose to formally “wind-up” all business activities when many different factors change. For example, when smaller corporations are involved, key parties may simply want to retire or pursue new goals. In other situations, market trends may change so significantly that corporate officers may want to choose more advantageous business structures. Regardless of why any specific Texas corporation decides to go through the termination process, basic legal steps must be followed carefully.

Since this process can involve different statutes, including detailed sections of the state’s Business Organizations Code, it’s always best to confer with your Houston corporate law attorneys. They’ll readily understand the termination process that the Texas Secretary of State’s Office expects each corporation to complete. (Of course, in some instances, a corporation may be involuntarily terminated for various reasons – including the failure to file annual reports).

Here’s a look at some of the steps you must be ready to take based on our state’s governing laws and the specific realities involved with your business. Although other states may speak of “dissolving” corporations, Texas usually refers to “winding up” corporate matters.

The Texas Business Organization Code’s Two Main Ways to “Wind Up” Activities

  1. The board of directors adopts a resolution. It should state that they are recommending that the corporation “wind up” its activities — after submitting this proposal to all the shareholders. At a properly convened meeting, the shareholders must then vote on this proposal. In general, a two-thirds majority of the shareholders must approve this decision before the winding-up process can begin;
  2. All shareholders must sign a “consent” document. Once this has been done, the “consent” document must be entered into the corporate records. This approach is most common when smaller corporations are involved. Great care must be taken to cover all key termination matters within this consent agreement.

Once this early internal activity has been concluded, numerous other steps must be taken to properly conclude all corporate business matters.

Common Additional Steps Required to “Wind Up” Your Corporation

  • All known parties with claims against the corporation must be served with notice of the current intent to terminate the corporation’s existence;
  • Every necessary corporate lawsuit must be properly initiated and concluded;
  • All corporate property must be properly collected and sold – depending on whether its value is owed in some manner to the shareholders;
  • All corporate liabilities must be properly discharged – including the payment of any taxes owed to the IRS or the state of Texas.

General Tax Issues and Obtaining Required Certificates

While your Texas corporate attorney may be prepared to handle all your corporation’s tax payment issues involved with the “winding up” process, you may also want to confer with a tax attorney.

Keep in mind that your corporation must obtain a “certificate of account status” from the Texas Comptroller of Public Accounts — and a final federal tax return must be properly filed once all corporate finances have been finalized.

Filing a Certificate of Termination

After you’ve obtained a certificate of account status from the Texas Comptroller of Public Accounts, you’ll need to file Form 651 (a certificate of termination) with the Secretary of State’s Office. Once this step has been taken and approved, your corporation’s existence has legally ended.

Added Issues That May Need to Be Addressed

Keep in mind that the information provided above was simply intended as an overview of the Texas corporate “winding up” process. Your attorney will be able to provide you further advice about whether additional paperwork is required. Fox example, certain Texas laws governing corporate mergers may or may not apply to your situation.

Please feel free to contact our law office with any questions you may have about possibly terminating your Texas corporation – or any other business entity. We can provide you with the advice you’ll need to properly handle all required stages of this process.