By Jake Lawson, LLC Formation Strategist
Here’s the Texas-sized truth: General partnerships might seem appealing because they’re free to form, but they come with liability risks as big as the Lone Star State itself. After helping over 1,200 entrepreneurs choose the right business structure—including hundreds of Texans—I’ve seen enough partnership disasters to know that “cheap to start” and “smart business choice” are two very different things.
Yes, Texas makes it easy to form partnerships, and I’ll show you exactly how. But I’m also going to explain why a Texas LLC is worth the $300 investment for most business partnerships, even in a state where everything’s supposed to be bigger and better.
What Is a Texas General Partnership?
A general partnership in Texas is governed by the Revised Partnership Act (Title 4, Chapter 152 of the Texas Business Organizations Code). Here’s how it works:
Formation Requirements
- No state filing required (partnerships exist when you start doing business together)
- No registered agent required
- No minimum capital requirements
- Two or more people carrying on business as co-owners for profit
What You Actually Need to Operate
- Partnership agreement (not required by law, but essential for banking)
- EIN from the IRS (required for tax filing)
- Assumed Name filing (with county clerk if using a business name)
- Business licenses (industry dependent)
- Business bank account (requires formal documentation)
Texas reality: While no state filing is required, you’ll still need substantial paperwork to operate professionally and open bank accounts.
Why I Don’t Recommend General Partnerships (Even in Business-Friendly Texas)
Texas’s pro-business reputation doesn’t eliminate the fundamental problems with general partnerships:
Problem #1: Unlimited Personal Liability in a Lawsuit-Heavy State
What it means: Each partner is personally responsible for ALL partnership debts and legal judgments.
Texas scenario: Your partner signs a construction equipment lease for $150,000 without telling you. The business fails. The equipment company can seize your personal ranch, truck, and bank accounts to collect—even though you never agreed to the lease.
Texas context: As one of the most lawsuit-prone states in the nation, Texas businesses face higher litigation risks than most states.
Problem #2: Joint and Several Liability
The legal reality: In Texas, creditors can collect the entire debt from any partner who has assets.
Real-world impact: Business gets hit with a $300,000 lawsuit (not uncommon in Texas). Even if you’re only a 25% partner, you could be personally liable for the full amount if your partners can’t pay.
Problem #3: Automatic Dissolution Under Texas Law
Texas law: Partnerships automatically dissolve when any partner dies, becomes incapacitated, or withdraws.
Business disruption: Your relationships with suppliers, customers, and banks get complicated every time partnership composition changes.
Problem #4: Texas Court System Complexity
Reality: Texas has one of the most complex court systems in the nation, with multiple jurisdictions and varying local rules.
Partnership vulnerability: Without entity protection, partners can be dragged into personal liability across multiple Texas court systems.
The Texas LLC Alternative: Why It’s Worth the Investment
Here’s why I recommend a Texas LLC despite the higher formation cost:
Formation Cost Comparison
General Partnership:
- Formation cost: $0
- County filing (if using business name): $20-$50
- Total startup cost: $20-$50
Texas LLC:
- State filing fee: $300
- Registered agent: $0-$225/year (can be self or hired)
- Total startup cost: $300-$525
Investment perspective: $250-$475 additional cost for substantial liability protection in a litigation-heavy state.
Tax Treatment (Identical)
Both partnerships and multi-member LLCs in Texas have:
- Pass-through taxation (no entity-level state tax)
- No state income tax (Texas doesn’t tax business income)
- Same federal tax filing requirements (Form 1065)
Bottom line: The tax benefits are identical, so this isn’t a reason to choose partnerships.
Legal Protection in a High-Risk Environment
- Partnership: Zero personal asset protection
- LLC: Strong liability shield protecting personal assets
Texas advantage: Given Texas’s business litigation environment, the LLC protection is particularly valuable.
Texas-Specific Partnership Considerations
Industry-Specific Risks
Oil and gas: High liability exposure from environmental and safety issues
Construction: Equipment liability and worker safety concerns
Real estate: Property liability and contract disputes
Technology: Intellectual property and contract litigation
Agriculture: Equipment accidents and product liability
Recommendation: All these industries benefit significantly from LLC protection due to inherent liability risks.
County-Level Complications
Texas structure: 254 counties, each with different filing requirements for assumed names
Complexity: If you operate across counties, you may need multiple filings
Cost multiplication: Assumed name filings in multiple counties add up quickly
Regional Business Culture
Dallas/Houston: Corporate environment expects formal business structures
Austin: Tech ecosystem prefers professional entity structures
San Antonio: Mix of traditional and modern business expectations
Rural areas: More accepting of informal structures, but liability risks remain
Step-by-Step: How to Form a Texas General Partnership
Despite my strong preference for LLCs, here’s the complete partnership formation process:
Step 1: Plan Your Partnership Structure
Critical decisions:
- Ownership percentages (profit/loss allocation)
- Capital contributions (who invests what)
- Management roles (who handles what)
- Decision-making process (voting procedures)
- Geographic scope (which counties you’ll operate in)
Jake’s Texas advice: Given the state’s size and complexity, be extra clear about geographic responsibilities and which partner handles what regions.
Step 2: Create a Comprehensive Partnership Agreement
Essential elements for Texas partnerships:
- Partner names and addresses
- Ownership percentages and capital accounts
- Profit and loss allocation
- Management responsibilities and authority
- Decision-making and voting procedures
- Dispute resolution mechanisms (specify Texas courts/arbitration)
- Partner withdrawal and death provisions
- Business dissolution procedures
- Geographic operating areas and responsibilities
Texas-specific considerations:
- Multi-county operations management
- Texas court jurisdiction preferences
- Oil/gas rights issues (if applicable)
- Weather-related business interruption procedures
Step 3: Handle Texas Assumed Name Requirements
When required: If using any name other than all partners’ legal names
Where to file: County clerk in each county where you:
- Have a physical business location, OR
- Conduct business activities (if no physical location)
Texas complexity: With 254 counties, this can get expensive if you operate statewide.
Filing process:
- Contact county clerk(s) for specific requirements
- Complete assumed name certificate
- Pay filing fee ($20-$50 per county)
- Receive stamped certificate
Step 4: Obtain Federal EIN
Required for:
- Filing annual partnership tax returns (Form 1065)
- Opening business bank accounts
- Hiring employees (if applicable)
Process: Apply directly through IRS.gov (free and takes 10 minutes)
Step 5: Research Texas License Requirements
State-level licensing:
- No general business license required
- Industry-specific licenses may apply
- Professional licenses for regulated industries
Local requirements:
- City business licenses
- County permits
- Zoning compliance
- Sales tax permits (if applicable)
Texas resources:
- Governor’s Business License & Permits Guide
- Texas Department of Licensing and Regulation
- Local economic development offices
Step 6: Set Up Business Operations
Banking requirements:
- Partnership Agreement (signed by all partners)
- EIN Confirmation Letter (CP 575)
- Assumed name certificate (if applicable)
- Photo IDs for all partners
Record keeping:
- Tax returns (previous 3 years)
- Partnership Agreement and amendments
- Financial statements
- County filings and renewals
Texas Partnership vs. LLC: The Honest Comparison
Let me break down the real differences for Texas businesses:
Formation Costs
- Partnership: $0-$200 (depending on counties)
- LLC: $300-$525 (including registered agent)
Cost difference: $100-$525 additional for LLC
Ongoing Compliance
- Partnership: Renew assumed names as required by counties
- LLC: No annual reports required in Texas
Compliance burden: Actually slightly higher for partnerships due to county renewals
Legal Protection
- Partnership: Zero personal asset protection
- LLC: Strong liability protection for personal assets
Texas value: In a litigation-heavy state, this protection is particularly valuable
Professional Credibility
- Partnership: Often viewed as informal, creates banking complications
- LLC: Universally understood and respected, easier banking relationships
Geographic Flexibility
- Partnership: Must file assumed names in each operating county
- LLC: One state filing covers all Texas operations
Texas advantage: LLCs provide statewide coverage without county-by-county filings
When General Partnerships Might Make Sense in Texas
In my 15 years of experience, here are the rare Texas cases where I might consider partnerships:
Short-Term Joint Ventures
Example: Two contractors partnering on a single infrastructure project with a clear end date.
Family Agricultural Operations
Example: Family ranching operations where liability insurance is comprehensive and family relationships are stable.
Professional Practices with Existing Protection
Example: Established professionals with comprehensive malpractice insurance and regulatory requirements.
Important note: Even in these cases, I usually recommend exploring Texas PLLC or LLC options first.
My Texas Business Structure Recommendation
For 95% of business partnerships in Texas, here’s what I recommend:
Texas Multi-Member LLC
Advantages:
- Same tax benefits as partnerships (no state income tax)
- Personal asset protection from business debts and lawsuits
- Professional credibility in Texas business environment
- Statewide coverage with single filing
- Business continuity despite member changes
- Flexible management structure options
Formation process:
- File Certificate of Formation ($300)
- Appoint registered agent (required)
- Create operating agreement (not required but essential)
- Obtain EIN (same process as partnership)
- Get necessary licenses (same requirements)
Ongoing Costs
- No annual reports required in Texas
- Registered agent: $0-$225/year
- Total annual cost: $0-$225
Texas Industry-Specific Recommendations
Oil and Gas Partnerships
High liability risks: Environmental cleanup, worker safety, equipment failures
Strong recommendation: Texas LLC essential due to industry liability exposure
Additional protection: Consider umbrella insurance policies
Construction and Contracting
Liability concerns: Worker injuries, property damage, equipment accidents
LLC benefits: Protects personal assets from job-site incidents
Professional image: Customers and bonding companies prefer formal entities
Technology and Professional Services
Intellectual property: Contract disputes and IP litigation risks
Client expectations: Professional entity structure expected in tech hubs
Investment readiness: LLCs better positioned for future investment
Real Estate Partnerships
Property liability: Guest injuries, environmental issues, contract disputes
Asset protection: LLC protects personal assets from property-related claims
Financing advantages: Lenders prefer dealing with formal entities
Common Texas Partnership Questions
Do I need to file with the state to form a partnership?
No state filing required for partnerships, but you’ll need county assumed name filings if using a business name.
How many counties do I need to file in?
Every county where you have a physical location or conduct business activities.
Can one partner bind the entire partnership to contracts?
Yes, unless your partnership agreement specifies otherwise. This is a major risk in Texas’s contract-heavy business environment.
What happens if a partner wants to leave?
Unless your partnership agreement provides otherwise, the partnership dissolves automatically—forcing potential business liquidation.
Are there ongoing filing requirements?
No state requirements for partnerships, but county assumed name certificates may need renewal.
The Bottom Line on Texas Partnerships
Look, everything’s bigger in Texas—including the business risks. While partnerships might save you $300 upfront, the potential liability exposure in Texas’s litigation environment makes that savings look pretty small.
The Texas math: A Texas LLC costs $300 to form but provides thousands of dollars worth of liability protection in a state known for large lawsuit judgments.
My honest Texas recommendation: Take advantage of Texas’s no-income-tax environment by forming a multi-member LLC. You’ll get all the tax benefits with none of the personal liability risks that can be particularly devastating in Texas’s business environment.
If you’re absolutely determined to form a partnership, invest in a comprehensive partnership agreement prepared by a Texas attorney familiar with the state’s complex legal environment. And seriously consider converting to an LLC once your business generates enough revenue to justify the additional protection.
Texas’s pro-business environment is real, but it doesn’t eliminate the fundamental risks of unlimited personal liability that partnerships create. In a state where lawsuits can be as big as everything else, that protection is worth every penny.
Questions about partnerships vs. LLCs for your specific Texas business situation? Send me a message—I personally read and respond to every inquiry within 24 hours.