Winding Up of a Business Partnership in Texas

Many substantial businesses start with a handshake. This can be a good thing or a bad thing.  Some million-dollar businesses in Dallas and Collin County begin when two entrepreneurs seek a common goal without proper legal documentation to protect their investments. When profitable, oral partnerships are created, but conflicts arise and it is important to know how to successfully terminate the oral partnership.

When irrevocable discord and conflict occur within the partnership it may be necessary to “Winding Up” and properly dissolve the relationship. Some of the triggering events are as follows:

1. Expiration of the period of duration, completion of an undertaking, or occurrence of a specified event that requires winding up the relationship;
2. Consent of the partners or the consent of the majority-in-interest partners where the partnership is at will;
3. Judicial decree requiring the winding up of the partnership;
4. The sale of all or substantially all the partnership assets outside the ordinary course of business; or
5. Receipt of a partner’s request to wind up a partnership at will, unless a majority-in-interest partner denies the request or agrees to continue.

A partnership agreement can limit or set specific events which require a “winding up” and eventual termination. When the partnership begins the process of “winding up” all assets will be sold, and any creditors will be paid first, followed by partners who may also be creditors. Then the remaining assets are distributed to the remaining partners according to their capital contributions and other partnership interest.

If the partners can come to a mutual agreement to sell all the assets or simply agree to dissolve the partnership, then no judicial interference or assistance is needed. This is sometimes not the case. If a partnership becomes lucrative and litigation ensues, the dissolution of a partnership may be determined by litigation in a Dallas or Collin County legal proceeding, often a very costly proceeding. It is always important to talk to an experienced attorney prior to entering a business to determine your options and set up a business formation that is suitable for the needs of your business and all individual partners or investors from the onset. The initial legal expense to create a proper written rather than oral business structure may pay dividends in the long run, likely avoiding and time-consuming, costly litigation

If you are currently in a troubled or conflicted business partnership please call the Nacol Law Firm to help you in determining your options, rights and road to resolving the conflicts.

Julian Nacol, Attorney
Nacol Law Firm

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