How to Dissolve a Partnership in Texas

Ready to end your partnership in the Lone Star State? While there’s no paperwork required, you’ll need to take steps to dissolve and wind up your business, including the complicated tasks of paying debts and distributing assets.

By , Attorney
Updated by Amanda Hayes, Attorney · University of North Carolina School of Law

Partnerships (also known as "general partnerships") can end for various reasons—from personal disagreements to economic frustrations. No matter the reason, it's important to do your due diligence in closing your business.

To guide you through the dissolution and winding-up process, you need to look at your partnership agreement, Texas partnership law, and best practices. Following these steps can help limit your liability and legally end your obligations.

Texas partnership laws are relatively unusual. So, you should consider consulting with a local business attorney before ending your partnership. For general guidance, see our article on dissolving a partnership to end your liability.

Table of Contents

1. Review Your Partnership Agreement

Before dissolving and winding up your business, your first task is to check your partnership agreement. While Texas doesn't require partnerships to have an agreement, many partners create one when they form their partnership. If you don't have a preexisting partnership agreement, the default provisions of Texas partnership laws will apply.

Your partnership agreement can provide the procedures for a dissolution vote as well as instructions for how partnership assets will be sold off and used to pay the company's debts.

But your agreement might not cover everything. If there's anything that the partners need to resolve, they should do so now. You can amend your partnership agreement or create a separate partnership dissolution agreement with the new terms.

2. Take a Vote or Action to Dissolve Your Texas Partnership

Partnership agreements often provide two ways for partnerships to be dissolved: by vote or by written consent without a vote.

In addition to providing ways the business can be dissolved, your agreement should also give the minimum number of partners needed to authorize the dissolution. For example, your agreement might require the following minimums:

  • a majority of the partners
  • a majority-in-interest of partners
  • two-thirds of the partners, or
  • all of the partners.

A "majority-in-interest" generally means that the partners who vote in favor of the dissolution must, when their interests are combined, have at least a 50% interest in either:

  • the ownership of the partnership, or
  • the profits of the partnership.

For instance, one partner with a 30% ownership interest and another partner with a 25% ownership interest would together be considered to have a majority in interest. Because their combined interests in the partnership equal 55%, together they have at least 50% of the ownership interest.

Some partnership agreements might require a different minimum based on how the matter of dissolution comes up. For example, if the partners vote at a meeting, the partnership agreement might only require two-thirds of the partners to vote in favor of dissolution. But if the partners don't have a meeting, the agreement might say that the partnership can be dissolved only by unanimous written consent of the partners.

When the Partners Don't Agree on Dissolving the Partnership

If you and your partners don't agree on how to dissolve the business—or on whether you should dissolve the business at all—then you'll need to reach a resolution. Fortunately, you usually have a couple of options to resolve these types of disputes:

  • Your partnership agreement might provide a solution. For example, there often is an option for partners who want to continue the business when other partners want to leave. The partners who wish to remain can buy out the partnership interests of those who want to leave. So the partnership would simply continue with fewer partners.
  • You could bring in an independent mediator to try to help resolve the disagreements. You should choose a neutral third party as your mediator that all partners agree to. You can find qualified business mediators in Texas who specialize in partnerships and business dissolutions.

Ultimately, however, if the partners can't come to an agreement after trying other options, you'll have to fall back on going to court and getting a judge to decide how the dissolution will proceed. You should try to avoid going to court. But if you really have no choice, you and your fellow partners should be independently represented by lawyers.

When There's No Partnership Agreement: Follow Texas Law

If you don't have a partnership agreement, you'll have to rely on the state partnership laws. In general terms, Texas law says that dissolving and winding up a partnership requires the express will of a majority-in-interest of partners who still have a partnership interest. (Tex. Bus. Orgs. Code § 11.057 (2023).)

For example, suppose Charlie, Connie, and Russ are partners in Bombay Ice Company in Texas, and their business doesn't have a partnership agreement. Charlie owns 60% of the partnership, and Connie and Russ each own 20%. Under Texas law, Bombay Ice Company can be dissolved by the vote or consent (express will) of Charlie alone—even if Connie and Russ vote against dissolving the partnership. Though Charlie is just one-third of the people in the partnership, he owns 60% (a majority-in-interest) of the company.

You should be able to meet Texas's dissolution requirement by having the partners with ownership interests that total more than 50% vote in favor of a written resolution to dissolve and wind up the partnership.

3. No State Filing Required to Dissolve Your Partnership in Texas

Texas doesn't require general partnerships to file a form with the state when they dissolve. Because general partnerships are considered "unincorporated," you don't need to file any paperwork with the Secretary of State (SOS) to form or end your partnership.

4. Pay Debts and Distribute Assets to Wind Up Your Texas Partnership

After you've voted to dissolve, you need to start the process of winding up the partnership. You'll want to finish up—or assign—any contracts currently in progress. You should also "liquidate" (sell) your partnership's physical assets like land, buildings, vehicles, and equipment.

Next, you should settle partnership debts before distributing the remaining assets to the partners. Texas has rules about the order that people must be paid in when winding up a partnership. In general, creditors, including partners who are creditors, must be paid first. If there's any money left over, it must be distributed to the partners according to the partners' capital accounts. (Tex. Bus. Orgs. Code §§ 152.706-707 (2023).)

How Profits Are Distributed to Partners Under Texas Law

A partner's capital account is the partner's balance with the partnership. If there's a positive balance, the partnership owes the partner money. If there's a negative balance, the partner owes the partnership money. If the partner contributes money to start up the business, then their capital account will begin with the amount they contributed because that's how much the partnership would owe them. Otherwise, their capital account balance would usually start at zero.

The account should then fluctuate throughout the life of the partnership based on the partner's share of the business income and any distributions made to the partner. Once the partnership dissolves, the money the partnership makes or loses from selling its assets and paying its debts should factor into the partner's final capital account balance.

(To learn more about capital accounts, read our partnership FAQ.)

Example of How Partners Share in the Business's Profits and Losses

Suppose that Tia, Tamera, and Roger are all partners in Sister-Sister Productions, and they've agreed to share in the business's profits and losses equally. The three partners decide to dissolve the business and start winding up its affairs. After paying all its creditors, the partnership has $8,000 to distribute to its three owners. The partners have the following capital account balances:

  • Tia has a balance of $10,000
  • Tamera has a balance of $6,000, and
  • Roger has a balance of $4,000.

When added together, the partners' capital accounts equal $20,000. So, the partnership has a debt of $20,000 to its partners. Because the business has $8,000 in assets and $20,000 in liabilities, the partnership's total obligations (debt) would be $12,000. The partners share in the business's profits and losses equally (one-third each), so each partner would be responsible for $4,000 (one-third of $12,000) of the partnership's total debt.

To calculate the total amount that they should receive from the partnership, each partner would simply subtract the $4,000 they're responsible for from their capital account balance. So, the partners would be entitled to the following amounts:

  • Tia should get $6,000 from the partnership (her $10,000 capital account balance less the $4,000 debt)
  • Tamera should get $2,000 from the partnership (her $6,000 capital account balance less the $4,000 debt), and
  • Roger should get nothing from the partnership (his $4,000 capital account balance cancels out his $4,000 debt).

The above example is based on three partners who share equally in the partnership's profits and losses. Your partnership agreement can provide a different distribution scheme. For example, one partner could be entitled to 60% of the profits and another partner could be entitled to 40%. However you choose to divide up the partnership interests, a partner's capital account should always reflect a partner's share of the business's assets.

5. Notify Creditors, Customers, Clients, and Suppliers

While not a legal requirement, you should notify creditors, customers, and others that your partnership is dissolving. Providing notice can help limit your liability for unknown debts and prevent partners from entering into unauthorized business deals.

You can send a written notice directly to creditors, business associates, and customers through the mail or by email. The notice can be specific to the recipient. For example, notice to a creditor can provide information on how and where they can send you information about their claim. Otherwise, the notice can be general, such as in a newsletter.

You can also simply post an announcement on your company website, social media pages, or physical place of business. Many companies publish a notice for a week or two in a local newspaper.

Make sure you keep a record of any notice you provide, especially notices to creditors.

6. Pay and File Final Tax Returns With Texas

As a partnership in Texas, you have few tax obligations. You're not required to obtain tax clearance before dissolving or winding up.

In addition, general partnerships whose partners are all natural persons (not companies) aren't responsible for paying the state's franchise tax. (However, general partnerships that elect limited liability, for example as a limited partnership or limited liability partnership, are liable for the franchise tax.)

State and federal income taxes. Texas doesn't have a personal income tax so the partners won't need to pay taxes on their share of the partnership's profits. For federal tax purposes, your partnership must file IRS Form 1065 and each partner will need to report their earnings share on their individual federal returns. If your partnership dissolves before the end of its normal tax year, its final federal return is due by the 15th day of the third month following the termination date.

Other state taxes. While you don't have to pay income tax and your partnership doesn't have to pay a franchise tax, you could still be responsible for reporting and paying other state taxes. Specifically, depending on your business activities, you might need to pay sales and use tax and property tax. You can find the appropriate tax forms on the Texas Comptroller of Public Accounts website.

7. Cancel and Close Accounts, Licenses, and Permits

The last step to winding up your business is closing out any remaining accounts, including bank accounts.

Additionally, if you have any of the following on file with a state or local government, you should cancel them:

In the end, there should be nothing left in your partnership's name.

Additional Guidance on Ending Your Texas Partnership

You should generally have a good idea of how to dissolve and wind up your Texas business partnership. But every business is different and you might have specific legal considerations that you'd like additional information on. For more, detailed guidance, read our 20-point checklist for closing a business. The Texas SOS also provides a frequently asked questions page about terminating a business entity.

If you need legal assistance, consider reaching out to a business attorney. They can help you through every step of the process, particularly when it comes to asset distribution.

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