Texas Limited Partnerships

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In Texas, a limited partnership (LP) is a partnership formed by two or more people, with one or more general partners and one or more limited partners. A general partner is allowed to fully control the business and take part in day-to-day operations.

A limited partner has limited control of the business and does not take part in day-to-day operations. A limited partnership is required to file a certificate of formation with the Texas Secretary of State.

Basics Regarding Partnership Agreements

An LP functions in accordance with a written or oral partnership agreement. ‌An entity can write its own partnership agreement, but it is a good idea to have a business or corporate law attorney who specializes in partnerships look over the agreement before the company utilizes it.

A partnership agreement is not filed for public record. An LP should use the Texas Secretary of State’s form for the certificate of formation. It can file the certificate online through SOSDirect, on the website for Business Services of the Texas Secretary of State.

Contrast With a General Partnership

A general partnership (GP) is established when two or more people associate to run a business for profit. A partnership usually functions in accordance with a partnership agreement. There is no requirement that a partnership agreement be in writing, and a GP does not have to file a partnership agreement with the state.

Using Assumed Business Names

An assumed name or a “doing business as” (DBA) certificate allows a business to operate under a name that does not include the last name of all its partners. For example, without a DBA certificate, Joe Smith and Jane Baker could run a plumbing business called “Baker & Smith Plumbing.” With a DBA certificate, the two partners could name the business “Best Work Plumbing.”

A GP gets an assumed name certificate by filing an application for the assumed name with the office of the county clerk in the county where the business maintains its premises.

If the business does not maintain premises, the partners should file the assumed name certificate in all counties where they conduct business under the assumed name. The filing fee for the application varies by county.

Limited Liability Partnerships (LLP)

A preexisting general partnership or a preexisting limited partnership can register with the Texas Secretary of State as an LLP. Filing an application for registration of an LLP does not create a partnership or other entity. The LLP is an optional registration made by an already-existing partnership.

An LLP limits the personal liability of the entity’s general partners. The secretary of state offers a form for registration as an LLP. The LLP can file online through SOSDirect.

Requirements for All Partnership Agreements

Since a partnership agreement does not need to be filed with the state, there are no requirements for a partnership agreement.‌ A partnership agreement for a limited partnership should name which parties are the general partners and which parties are the limited partners.

It should also explain what duties a general partner has as opposed to a limited partner. A partnership agreement for an LLP should specify how the personal liability of the general partners is limited.

Additional items that should be included in a partnership agreement are:

  • What each partner contributed to the business.
  • Profit and loss-sharing, including when and how to pay the partners, and in what percentage.
  • How to amend the partnership agreement.
  • Clarification that Texas law governs the partnership agreement.
  • How partners will settle disputes, particularly whether they will use arbitration or mediation before filing a civil lawsuit against one another in relation to the business.

Additional Optional Information

A partnership agreement also can contain numerous other clauses and information, including:

  • Whether the partnership is general or limited.
  • Name of the partnership.
  • Partnership’s home office address.
  • Names and addresses of partners.
  • Length or term of the partnership, if it is finite.
  • Purpose or goals of the partnership.
  • Standards of conduct for partners.
  • What constitutes a conflict of interest for current or former partners.
  • How partners determine certain decisions, such as hiring and terminating employees.
  • Rules if a partner withdraws or dies.
  • Where the partnership will operate.
  • Business hours of operation, sick leave and vacation policies.
  • Procedures to add new partners.
  • When and how a partner can transfer their interest to another party, including policies regarding buyout and dissolution.
  • Nondisclosure clause, which restricts current and former partners from disclosing proprietary information.
  • Non-solicitation clause, which restricts current and former partners from soliciting employees and customers/clients from the partnership.
  • Non-competition clause, which restricts current and former partners from competing with the partnership’s business within a certain geographic range and time period.

A court can invalidate non-competition, nondisclosure and non-solicitation clauses in a partnership agreement if the clauses do not meet certain requirements in accordance with Texas law. A partnership should consult a business law attorney to craft or review these clauses.

Setting Up a Partnership

The answer to the query, “How to start a partnership business in Texas?” can be answered by reviewing rules for all partnerships, as well as rules for the specific type of partnership the parties want to establish.

Generally, starting a partnership in Texas involves determining the type of partnership, writing a partnership agreement and filing a certificate of formation with the Texas Secretary of State.‌ This includes paying the fee for the certificate and getting an assumed name certificate with the county clerk’s office, if desired.

Setting up a general partnership in Texas without making the GP a limited liability partnership does not require the partnership to file a certificate of formation.

Filing Fees for Partnerships

Filing fees are listed on the fee schedule for the Texas Secretary of State.‌ These include a certificate of formation for a Texas limited partnership at $750, and registration or renewal as a Texas limited liability partnership at $200 per partner.

The fees for foreign partnerships (partnerships established outside Texas, both in another state or territory of the U.S. or abroad) are higher than for partnerships established within the state.

Filing Annual or Periodic Reports

A Texas LLP is required to file an annual report with the Texas Secretary of State no later than June 1‌ of each year following the calendar year in which the application for registration takes effect. The secretary of state sends a notice to an LLP to file the LLP annual report no later than March 31 of the current report year.

Certain Texas and foreign LPs that are not subject to state franchise taxes are required to file a periodic report with the secretary of state upon receiving notice. These LPs do not have to file a report more than once every four years.

Role of the Registered Agent

The Texas Secretary of State will send a notice to an LP at the registered agent mailing address on file. A registered agent is an individual Texas resident or a domestic entity or a foreign (out-of-state) entity that is qualified or has registered to transact business in Texas. The registered agent is responsible for receiving and forwarding service of process and official notices addressed to a business.

A person who is designated as the registered agent for a business is required to have consented in written or electronic form to serve in this position.

A business’ registered office must be a physical address in Texas where the registered agent can be served personally with process during business hours. It cannot be an address of a mailbox service or telephone answering service. The secretary of state cannot serve as a business’ registered agent.

Annual Franchise Tax Returns

Certain Texas or foreign LPs that are subject to state franchise tax laws must file annually with the Comptroller of Public Accounts. These taxable entities file a Public Information Report (PIR) as part of the annual franchise tax reports.

The PIR provides the names and addresses of persons who are officers, directors and managers at the time the business files the report.

Other Information Regarding Partnerships

A person does not have to be a U.S. citizen, a U.S. resident or a Texas resident to form and/or own a business entity in Texas, including a limited partnership. A person does not have to be 18 to be an owner or operator of a business in Texas. An organizer is only required to be a person capable of entering into a contract.

An entity such as an LP may impose residency or citizenship requirements in its certificate of formation or other governing documents. An existing unincorporated business that wants to incorporate without a change to its name no longer has to publish its intent to incorporate in the local newspaper. This requirement was repealed in 2003.

A business such as a limited partnership does not file its bylaws or company agreement with the Texas Secretary of State. There is no law that permits the filing of these documents with that state office. This means that the secretary of state will not accept such documents for filing.

Receiving File-Stamped Copies of Documents

A business receives a file-stamped copy of its certificate of formation by submitting a duplicate copy of the filing instrument. The secretary of state is not required to attach a file-stamped copy of an instrument when the company has not provided a duplicate copy.

When a limited partnership is ready to sell or issue ownership shares, it does not have to file a document with the Texas Secretary of State.

Why LLP Applications Are Rejected

The two most common reasons for rejection of an application to register an LLP are:

  • No record that the certificate of formation document was filed with the Texas Secretary of State to create a GP or LP. A GP or LP must be created and in existence before it can register as an LLP.
  • If application to register the partnership as an LLP states that the underlying partnership has only one general partner, the underlying partnership must be an LP. The underlying partnership cannot be a GP. General partnerships must have at least two partners.

How Long LLP Registration Lasts

A Texas LLP is no longer required to renew its registration annually. This change took effect January 1, 2016. The registration of a Texas LLP is effective until the partnership voluntarily withdraws it or the secretary of state terminates it. The registration of a foreign (out-of-state) LLP lasts one year. The partnership can renew it before it expires for an additional one-year term.

Foreign LLP Registration Fees

A foreign LLP must register with the Texas Secretary of State before it transacts business in the state. The fee for registration is $200 for each general partner that resides in Texas, with a total set of fees to be no less than $200 and no more than $750.

If the underlying partnership is an LP, the LP must also file a separate application for registration. The fee for the one-time registration is $750.

Cancellation of an LLP

An LLP does not have to inform the secretary of state when it dissolves or otherwise voluntarily terminates the underlying partnership. If the partnership dissolves itself, it may voluntarily withdraw its registration, and the secretary of state removes the partnership’s registration from its active records.

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