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socrateaser
socrateaser, Attorney
Category: Business Law
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Experience:  Retired (mostly)
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One of the my business partners in a Texas LLP wants to walk

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One of the my business partners in a Texas LLP wants to walk away and start a similar business. Does he first need to give up his shares in our current business before he starts to solicit our customers?
Hello,

TX Bus. Org. Code Chapter 152 and 153 require that a partner not compete with the partnership (Section 152.205(3)). However, no statute or case law directly applies this duty on limited liability partners.

In Strebel v. Wimberly, 371 S.W.3d 267 (Tex. App. 1/12/2012), the court of appeals extends the duty of loyalty to "limited partners" who engage in the management of an LP. But, no case law has similarly held a general duty of loyalty for partners of an LLP.

It seems logical that LLP partners, who are generally authorized to engage in the management of a partnership would be liable for the duty of loyalty, regardless of whether or not they actually engaged in management -- because unlike with limited partners, limited liability partners are expected to manage the business.

Therefore, the answer here must be "yes," an LLP member breaches his/her duty of loyalty if he/she competes with the LLP, prior to completely dissociated from the LLP.

Hope this helps.
Customer: replied 3 years ago.

Thanks, XXXXX XXXXX be the process for him to dissociate himself from the company?

A formal letter of withdrawal from the partnership by the dissociating partner combined with the redemption of the partner's financial interest in the partnership at fair market value are the two requirements. Assuming that the LLP does not, or cannot redeem the dissociating partner's interest, then there is no dissociation, and the partner remains obligated to the LLP.

The dissociating partner could sue the LLP for refusing to redeem in circumstances where the LLP can afford to redeem, under the theory that the LLP was attempting to restrain the dissociating partner from competing. This option would not be available, were there a partnership agreement that prohibits competition for a certain time period. Based upon your previous allegations, I doubt that there is any noncompete in play.

Hope this helps.
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