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.

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.

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.

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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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Comparison: LP and LLP

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.

Michigan Business Partnership Laws

Michigan has adopted the Uniform Partnership Act and Revised Uniform Limited Partnership Act, located in Chapter 449 of Michigan Codified Law along with several other partnership act provisions. This Act addresses a wide range of partnership issues, such as the types of partnerships available in Michigan, establishment of a partnership, winding up a partnership, and the rights of partners. Attorneys, online document preparation websites, and Michigan’s Bureau of Commercial Services offer assistance for persons wanting to establish partnerships under Michigan law.

South Carolina LLP Laws

South Carolina law regulates how a Limited Liability Partnership, or LLP, may form, operate, and ultimately dissolve. Unlike limited partnerships or general partnerships where one or more partners are personally liable for the debts of the business, an LLP limits liability for all partners. Each partner may participate in the management of the business, and receive a portion of the profits.

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