Texas Limited Partnership Agreement

By Jim Thomas

A limited partnership is one type of business entity that can be set up in Texas. Although the partnership does not require a filing in the public record, The Copp Law Firm in Dallas says you are required to submit a certificate of formation to the Texas Secretary of State's office. There are a number of advantages to forming a limited partnership, in particular the ability to shield the limited partners from personal liability as well as potential tax savings.

A limited partnership is one type of business entity that can be set up in Texas. Although the partnership does not require a filing in the public record, The Copp Law Firm in Dallas says you are required to submit a certificate of formation to the Texas Secretary of State's office. There are a number of advantages to forming a limited partnership, in particular the ability to shield the limited partners from personal liability as well as potential tax savings.

Definition

A Texas limited partnership consists of an agreement between at least two partners, one of whom must be designated as a general partner and another designated as a limited partner. The general partners control the operation of the business on a day-to-day basis. Members of the board of directors can retain their limited partner status if they don't assume such control.

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Liability

As stated by the Law for Change website, the general partner or partners have unlimited liability for the debts and obligations of the partnership to third parties. Outside creditors can go after the personal assets of the general partners. On the other hand, the personal assets of limited partners are protected from third-party actions, although a limited partner is liable to the general partners for contributions he agreed to make to the general partners under the partnership agreement.

Taxes

Limited partnerships that meet certain criteria related to limited liability, including centralized management and an ability to transfer ownership interests, can qualify as "pass-through" entities for tax purposes. This enables the partners to avoid taxation on the partnership itself. As the QuickMBA website notes, in a limited partnership "income can be allocated each year among the partners in a way that minimizes taxes." However, if your partnership doesn't meet the criteria, it will be taxed as a corporation.

Formation Requirements

The general partner submits the certification of formation, which includes the name of the limited partnership, the address of the partnership's registered office in the state, and the names and addresses of all general partners. The name of the partnership must contain the words or abbreviations of "limited" or "limited partnership." The partnership operates under the provisions of the partnership agreement, which can be written, oral or implied. It also can be revised by the partners.

Considerations

While the TBOC has no formal record-keeping requirements, the general partners are obligated to give limited partners certain information, such as the status of the business and the financial condition of the limited partnership. So they need to keep such records in case of a dispute between the general and limited partners.

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References

Related articles

Can a Limited Partner Make Decisions Binding to the Partnership?

A limited partner can have an ownership stake in a limited partnership or a limited liability partnership. Whether a limited partner can make a binding decision for a business depends on the organization he is affiliated with and what the decision is. Both limited partnerships and limited liability partnerships are bound by state law. As a result you may want to review the relevant statutes of your state to determine what rights a limited partner has.

The Limited Partnership Act in South Carolina

A limited partnership contains two categories of partners: general partners and limited partners. General partners manage the business and remain liable for all partnership debts and obligations. Limited partners contribute capital to the partnership but take no part in its day-to-day management; their liability for debts is limited to the amount of capital they have invested. In South Carolina, the Limited Partnership Act governs the formation and operation of limited partnerships in the state.

Limited Liability Partnership in New Hampshire

A limited liability partnership offers a solution for businesses seeking to combine the flexibility of a partnership with the protection of limited liability. In an LLP, individual partners are, in most circumstances, not liable for the debts or negligent acts of other partners. Each partner remains responsible for liabilities incurred as a result of his own personal actions or the actions of any individual for whom he is responsible. Section 304-A:44 of the New Hampshire statutes contains the relevant legal provisions.

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