04 / 28 / 2011

The Accidental Partnership

You can’t accidentally form a corporation. In Texas, as in other states, there are forms that must be filed and fees that must be paid.

A partnership, however, can arise without any formal agreement between the partners. Many businesses start without loans from banks, but rather with money from friends and family. The owner of the upstart business is well advised to make sure that any amounts owed by the business be classified as debt in writing, unless the owner wants every friend and family member as a potential partner.

Without such records of debt, there’s nothing to prevent Uncle Pete from saying "Creditor?! Heck no, I own half the business! We’re partners.” This kind of costly confusion can be avoided by making sure that no creditor mistakes his note for an equity interest.

After all, if and when the business takes off, the owner of an upstart business wants to be able to pay off the debt and make profit, not divide profits with a partner he never wanted. 

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