In this current financial climate where many are feeling the pinch of rising costs everywhere, have you ever considered a “side gig” or a “side hustle” to supplement your income? Have you ever decided with a friend or family member to sell items and/or services together?
“Together” is the key! As soon as you decide to begin selling goods and/or services for profit, you have likely created a partnership under Texas law that is automatically subject to certain rules and regulations. You do not have to intend to create a formal, legal partnership or sign/file any documents with the state for the Texas default rules to apply. See Texas Business Organizations Code Sec. 152.051(b)(1).
It starts out so well… you are the best of friends… the closest of siblings or relatives. But suddenly a dispute of some kind arises between you, relating to the business or not. You find yourself in a situation where you don’t want to be in business together anymore. What happens to the business if you cannot agree amongst yourselves? You may need to retain the services of an attorney to assist you in unraveling the mess.
In resolving business disputes for informally created businesses, the question will likely arise: Have you created a “partnership” that is governed by Texas law? There is a list of factors that determine whether you have created a partnership with your business partner. The factors that will be analyzed in determining whether you and another person or persons have created a partnership will depend on the answers to the following questions, for example:
Receiving a share of the profits is a strong indicator of partnership. It suggests that you are entitled to a portion of the net earnings of the business, which is a key characteristic of a partnership.
Even if you haven't yet received profits, having the right to receive them in the future is significant. It can reflect an agreement or understanding that your efforts, investments, or involvement in the business entitles you to future profits.
Expressing intent to be partners is crucial in establishing a partnership. This can be verbal, written, or implied through actions. Clear communication IN WRITING of this intent – or lack thereof - helps avoid misunderstandings later.
Participation in control refers to being involved in decision-making processes and operational or management activities. This includes actually making decisions regarding business operations, strategies, policies or actively running the business.
Having the right to participate in control, even if you choose not to exercise it regularly or even at all, can signify a partnership. If you have the right to participate in decision-making, you can be found to be a partner, sharing in both the benefits and responsibilities of running the business.
Sharing losses and liabilities is a critical aspect of partnerships. It demonstrates a willingness to bear financial risks alongside the potential rewards. This can manifest in many ways, including for example co-signing on a lease agreement for the space in which a business operates or jointly signing for a loan or line of credit relating to the business.
Contributing money or property shows you have a vested interest in and have made a financial commitment to the business. It is an important factor in showing that you are working with another party toward a common goal.
Should you find yourself needing the assistance of an attorney in the creation of a business or in the resolution of a dispute, we would be happy to consult with you on possible representation.
If you get to the point where you are debating whether the above factors apply to your current situation, you may be in a legal dispute or a lawsuit!
In addition to the factors above, documents and evidence that may be reviewed in analyzing whether a partnership exists can include simple, everyday communications such as:
Text messages can serve as crucial evidence of partnership. They often contain informal conversations where parties may discuss business plans, share profits, divide responsibilities, or make decisions together. Reviewing text messages can reveal:
Emails provide a more formalized record of communication. They can include detailed discussions on business strategies, financial agreements, and operational plans. Key points to look for in emails include:
Social media messaging applications (e.g., WhatsApp, Facebook Messenger) often blend personal and professional communication. These messages can show:
Posts on platforms like Facebook, Twitter, LinkedIn, or Instagram can provide public-facing evidence of a partnership. This includes:
The testimony of people who may have overheard conversations or observed interactions between you and your business "partner" can be compelling evidence. This can include:
The lessons I have learned as a business law attorney from years of handling business disputes are that:
Should you find yourself needing the assistance of an partnership attorney in the creation of a business or in the resolution of a dispute, we would be happy to consult with you on possible representation.
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