A project which would have built an oil pipeline between Cushing, Oklahoma and Houston, Texas has turned into a courtroom battle that will consider the basic question of when a relationship becomes a partnership under Texas law. The players in the dispute are Dallas’s Energy Transfer Partners and Houston’s Enterprise Products Partners. Energy Transfer claims that Enterprise broke its commitment to form a joint venture with Energy Transfer to build the pipeline. Enterprise claims that the two oil companies never formed a joint venture or partnership.
Unlike Texas corporations and limited liability companies, which can be formed only by making the appropriate filing with the Texas Secretary of State, it’s the relationship that’s key when it comes to a partnership. No paperwork is necessary (although it’s usually desirable to have certain documents in place if you’re intentionally entering into a partnership).
In most states, including Texas, the relationship between two or more people or businesses is a partnership if they associate with each other for the purpose of carrying on a common enterprise and share in its profits and losses. For example, if Marge and Tom agree to get together and bake pies that they’ll sell at the local market, splitting any profit 50/50, there’s a very good chance that a court would find that they’d formed a partnership regardless of what they call their relationship.
Why does it matter whether a partnership has been formed? There are numerous reasons. In cases like the Enterprise Products/Energy Transfer dispute, one potential partner wants to share in the potential profits that would be generated by the project. In other cases, the existence of a partnership will matter to someone that is suing one of the “partners.” If the law considers them to be partners, the plaintiff in the lawsuit will be able to recover against both partners.
Whether a partnership exists can be a very complex question. If you’re in a dispute with someone you’ve done business with and think that your relationship may be a partnership, consult with an experienced Houston business attorney to bring some clarity to your case and ensure that your rights are protected.