How to Start a Limited Partnership in Texas | A Step-by-Step Guide

by
Start a Limited Partnership in Texas

A limited partnership is an attractive business structure for those who want to start an LLC in Texas. It combines the best of both worlds, offering limited liability protection for limited partners and the ability to manage the business for general partners actively. This article will outline the steps on How to Start a Limited Partnership in Texas, covering everything from researching and preparing to registering your limited partnership with the Texas government and beyond.

Webinarcare Editorial Team will help you gain knowledge through thorough research and market study. Before starting your Texas Limited Partnership, all the steps in this article must guide you.

Steps in Starting a Limited Partnership in Texas

What is a Limited Partnership?

A Limited Partnership (LP) is a business structure comprising two types of partners: general and limited. It is a legal entity distinct from its partners and combines certain features of partnerships and corporations.

General partners are responsible for the day-to-day management of the business, make decisions on behalf of the partnership, and have unlimited liability for the partnership’s debts and obligations. This means their assets can be seized to cover the partnership’s liabilities if necessary.

Limited partners, on the other hand, are passive investors who do not participate in business management. They provide capital to the partnership and receive a share of the profits in return. Their liability is limited to the amount they have invested in the partnership, meaning that their assets are generally not at risk for the partnership’s debts beyond their investment.

It is suggested that you speak with a legal professional before you begin setting up your limited partnership in Texas. They’ll understand what’s best for you and your company. To safeguard your personal assets from business debts, you can always start an LLC rather than a limited partnership.

– WEBINARCARE EDITORIAL TEAM

Steps in Starting a Limited Partnership in Texas

To form a limited partnership in Texas, you must consider following the below guidelines that, include research and preparation, establishing the limited partnership structure, drafting the limited partnership agreement, registering the limited partnership, complying with additional Texas requirements, and ongoing management and compliance and reporting requirements. 

Step 1: Research and Preparation

Before starting a limited partnership in Texas, you must familiarize yourself with this business structure’s laws and regulations. In the United States, limited partnerships are primarily governed by the Uniform Limited Partnership Act (ULPA). However, each state has its laws and regulations, so it’s essential to know the specific rules that apply in Texas.

While researching, consider whether a limited partnership is the most suitable structure for your business needs. Limited partnerships are ideal for businesses with one or more passive investors who want to avoid taking on the business’s day-to-day responsibilities. Consider alternative structures like Texas Corporations if a limited partnership doesn’t seem right.

Step 2: Establishing The Limited Partnership Structure

Once you’ve determined that a limited partnership is the right choice for your business, the next step is to establish the structure of your partnership. This involves choosing a name, hiring a Registered Agent, and determining the roles of the partners.

Choose a Name for the Limited Partnership

The name you choose for your limited partnership is essential to your business identity. In Texas, there are specific requirements that your limited partnership name must meet, such as including the words “Limited Partnership” or the abbreviation “LP.” Before settling on a name, conduct Texas Business Name Search through the Texas Comptroller of Public Accounts Taxable Entity Search to ensure the name you’ve chosen is available and not already used by another business.

Naming requirements for a Limited Partnership in Texas may include:

  • The name must be unique and distinguishable from other business entities registered in the state.
  • The name must include the words “Limited Partnership,” “L.P.,” or “LP.”
  • Certain words and phrases may be restricted or require additional approval from Texas.

If the limited partnership name is available, you may choose to reserve it for a specific period of 120 days by filing a name reservation application and paying the online name reservation fee of $40 and mail name reservation fee of $40. If your corporation plans to operate under a name other than its legal name, you may also need to register a fictitious or “doing business as” (DBA) name. 

The DBA filing can be done by two methods, by mail and in person., which costs around Varies by county. In addition, the DBA’s validity in Texas is ten years, which you can file in Texas Secretary of State.

You can check out how to file a DBA in Texas for clearer understanding.

Hire a Registered Agent

A Registered Agent is a person or entity responsible for receiving legal documents and official notices on behalf of your LP. In Texas, your Registered Agent must:

  • Be a resident of Texas or a business entity authorized to do business in the state
  • Have a physical address in Texas (P.O. boxes are not acceptable)

Choosing a reliable and responsible Registered Agent is essential, as failure to receive and respond to legal documents can seriously affect your business. 

You can serve as your own Registered Agent or appoint a friend or family member, or hire a professional Texas Registered Agent Services. With that, we reviewed some of the best-registered agent services and provided features as an add-on with their formation packages for you to check out.

LLC Service

Rating & Pricing

Top Features

Learn More

#1 Recommendation

$299 Per Year

  • Free LLC Formation

  • RA service in all states

  • Legal consultation

Learn More

$125 Per Year

  • Flat price for RA service

  • LLC formation package

  • Fast service

Learn More

Determine the Roles of the Partners

A limited partnership consists of two types of partners: general and limited. General partners are responsible for the day-to-day management of the business and have unlimited liability for the partnership’s debts and obligations. Limited partners, on the other hand, are passive investors who don’t participate in the management of the business and have limited liability up to the amount they’ve invested in the partnership.

As you structure your partnership, carefully consider who will take on the roles of general and limited partners. Remember that general partners will have more responsibility and potential liability, so choose those individuals wisely.

Step 3: Drafting the Limited Partnership Agreement

With the partnership structure established, the next step is to draft a limited partnership agreement. This document sets forth the partnership’s terms and conditions and should be carefully crafted to ensure it meets all legal requirements in Texas.

Include Essential Elements

A well-drafted limited partnership agreement should include the following essential elements:

  •  Name of the limited partnership
  •  Purpose of the limited partnership
  •  Duration of the limited partnership
  •  Names and addresses of general and limited partners
  •  Capital contributions of each partner
  •  Allocation of profits and losses
  •  Management and decision-making structure
  •  Process for admitting new partners

Address Optional Elements

In addition to the essential elements, it’s a good idea to address the following optional elements in your limited partnership agreement:

  •   Transfer of partnership interests
  •   Withdrawal or removal of partners
  •   Dissolution and winding up the process

To ensure your limited partnership agreement is legally sound and compliant with Texas laws and regulations, it’s advisable to seek legal advice from a Business Attorney in Texas with experience in limited partnerships.

Step 4: Registering the Limited Partnership

Once your limited partnership agreement is in place, the next step is to register your limited partnership with the Texas government. This process typically involves filing a Certificate of Limited Partnership with the Texas Secretary of State’s office.

Prepare and File the Certificate of Limited Partnership

To file the Certificate of Limited Partnership, complete the required forms, which can typically be found on the Texas Secretary of State. Include all necessary information and signatures, and pay the filing fee of $200.

Obtain an Employer Identification Number (EIN) from the IRS

After registering your limited partnership with the Texas government, you’ll need to obtain Texas Employer Identification Number (EIN) from the Internal Revenue Service (IRS). This number is used to identify your partnership for tax purposes and is required for filing federal and state tax returns.

The application of an EIN can be through the following:

  • Apply Online- The online EIN application is the preferred method for customers to apply for and obtain an EIN.
  • Apply by Fax- Taxpayers can fax the completed Form SS-4 application to the appropriate fax number), after ensuring that Form SS-4 contains all of the required information.
  • Apply by Mail- The EIN application Form SS-4 can be filed via mail. The processing time frame to receive the mail is four weeks.
  • Apply by Telephone-International Applicants – International applicants may call 267-941-1099 (not a toll-free number) from 6 a.m. to 11 p.m. (Eastern Time) Monday through Friday to obtain their EIN.

After you have your EIN, you can benefit in several ways. It will give your LLP the absolute advantage necessary to operate at full capacity without encountering legal or judicial issues.

Recommended: If you would like to get your EIN easier, Legalzoom’s EIN services will obtain your tax ID number a breeze. Their knowledgeable team and easy-to-use platform allow businesses to quickly and confidently navigate the process. We recommend using –

LegalZoom – Pricing at $79

Register For Texas Taxes

Depending on your business activities and location, you may need to register for certain Texas taxes. Check with the Texas Comptroller of Public Accounts or a tax professional to determine which taxes apply to your limited partnership.

Step 5: Complying With Additional Texas Requirements

In addition to registering your limited partnership with the Texas government, there may be other requirements you need to meet to operate your business legally. These may include obtaining business licenses or permits, filing annual reports with the Texas Secretary of State, and maintaining proper records and documentation.

Obtain Any Necessary Business Licenses or Permits.

Depending on the nature of your business, you may need to obtain various licenses or permits from state or local authorities. Check with the Texas Department of Business and Industry or a licensing professional to determine which licenses and permits apply to your limited partnership. However, in Texas, the costs of Texas Business Licenses range from $50 – $300.

You can check out the United States Business License & Licensing Fee Resources for more information about the costs in Texas.

File Annual Reports 

Texas require limited partnerships to file Annual Reports with the Texas Secretary of State’s office. These reports typically include updated information about the partnership, such as the names and addresses of partners and any changes to the partnership agreement. 

Recommended: Legalzoom’s annual report services provide a comprehensive and streamlined approach to ensuring businesses maintain compliance and transparency. Their attention to detail and dedication to client satisfaction make them the go-to choice for all your annual reporting needs. We recommend using –

LegalZoom – Starts at $99 + filing fees

Maintain Proper Records and Documentation

As a limited partnership, it’s essential to maintain proper records and documentation, including copies of your limited partnership agreement, tax returns, financial statements, and any other relevant documents. These records should be kept in a safe and accessible location and may be required in the event of an audit or legal dispute.

Step 6: Ongoing Management and Compliance

Starting a limited partnership in Texas is the beginning. To ensure the ongoing success of your business, it’s crucial to stay on top of management and compliance tasks. It is better to have regular meetings with your partners to ensure everyone is on the same page regarding the direction and performance of your business. These meetings can also help identify and address issues or concerns before they become more significant problems.

As a limited partnership, you must file annual tax returns and pay any required taxes at the federal and state levels. Consult with a tax professional to ensure you comply with all tax laws and deadlines.

Advantages of Limited Partnerships in Texas

Here are some key advantages of forming a limited partnership in Texas:

  • Limited Liability for Limited Partners: One of the main benefits of a limited partnership is that limited partners enjoy limited liability protection. This means their assets are generally not at risk for the partnership’s debts and obligations beyond their investment in the partnership. This limited liability can be attractive for investors who want to participate in a business venture without taking on the same level of risk as general partners.
  • Pass-through Taxation: Limited partnerships are typically subject to pass-through taxation, meaning the partnership’s profits and losses flow to the partners’ individual tax returns. This structure avoids double taxation, as the partnership is generally not subject to federal income tax. Instead, each partner is responsible for paying taxes on their share of the partnership’s income at their individual tax rate.
  • Flexibility: A limited partnership allows for flexibility in the management structure. General partners have the authority to make decisions and manage the business, while limited partners can remain passive investors. This division of responsibilities and decision-making power can appeal to both parties. It allows general partners to maintain control over the business operations and limited partners to invest without being involved in day-to-day management.
  • Ease of Formation: A limited partnership is typically less complicated and expensive than a corporation. Limited partnerships generally require filing a Certificate of Limited Partnership with the state and creating a limited partnership agreement, which is less complex than the documentation required for a corporation.
  • Attracting Capital: Limited partnerships can attract capital from investors who want to participate in a business venture without taking on the responsibilities and risks of being a general partner. This structure can help businesses secure funding while allowing limited partners to benefit from the partnership’s profits.
  • Continuity of the Partnership: In Texas, limited partnerships can continue to exist even if one of the general partners dies, withdraws, or is replaced, as long as there is at least one remaining general partner. This continuity can provide stability and help ensure the ongoing success of the partnership.

Can a Foreign Limited Partnership Do Business in Texas?

Yes, a foreign Limited Partnership can do business in Texas by registering as a foreign LP with the Texas Secretary of State or appropriate state agency. The foreign LP must provide a certificate of good standing from its home state and pay any required registration fees.

What are the Tax Implications of Forming a Limited Partnership in Texas?

Limited Partnerships are generally considered pass-through entities for tax purposes, meaning that the profits and losses of the business are passed through to the individual partners, who report them on their personal income tax returns. However, specific tax implications may vary depending on the state and the nature of your business. It is recommended to consult with a tax professional to determine your specific tax obligations.

FAQs

What is a limited partnership in Texas?
A limited partnership in Texas is a partnership with at least one general partner who manages the business and accepts unlimited liability and one or more limited partners who are investors with limited liability.
How do I start a limited partnership in Texas?
To start a limited partnership in Texas, you need to file a Certificate of Formation with the Texas Secretary of State.
What information do I need to include in my Certificate of Formation in Texas?
In your Certificate of Formation in Texas, you will need to include the name of your limited partnership, the name and address of each general and limited partner, and any additional information required by the state.
How much does it cost to form a limited partnership in Texas?
The cost to form a limited partnership in Texas is $200.
Do I need a lawyer to form a limited partnership in Texas?
It is not required to have a lawyer to form a limited partnership in Texas, but it is advisable to have one to ensure compliance with all the legal requirements.
Can I start a limited partnership alone in Texas?
No, you cannot start a limited partnership alone in Texas. You need at least one general partner and one limited partner.
Can a corporation be a general or limited partner in Texas?
Yes, a corporation can be a general or limited partner in a Texas limited partnership.
How long does it take to form a limited partnership in Texas?
It takes about 5-7 business days to form a limited partnership in Texas.
Can I reserve a name for my limited partnership before filing my Certificate of Formation in Texas?
Yes, you can reserve a name for your limited partnership by filing a Name Reservation Application in Texas.
Are there any yearly filing requirements for a limited partnership in Texas?
Yes, a limited partnership in Texas must file an Annual Report with the Texas Secretary of State every year.
Do all limited partners have the right to manage the business in Texas?
No, only the general partner(s) in a Texas limited partnership has the right to manage the business.
Is there a requirement for partners to have certain qualifications or licenses in Texas?
No, there are no requirements for partners to have certain qualifications or licenses in Texas.
Do partners in a Texas limited partnership have personal liability?
Yes, the general partner(s) in a Texas limited partnership have personal liability for the company.
What is the difference between a general and limited partner in a Texas limited partnership?
A general partner manages the business in a Texas limited partnership and has unlimited personal liability, while a limited partner is an investor and has limited liability.
Can I change the name of my limited partnership in Texas?
Yes, you can change the name of your limited partnership by filing an Amended Certificate of Formation with the Texas Secretary of State.
Can I add or remove a partner from my limited partnership in Texas?
Yes, you can add or remove a partner from your limited partnership by filing an Amendment to your Certificate of Formation with the Texas Secretary of State.
How do I dissolve my limited partnership in Texas?
To dissolve your limited partnership in Texas, you need to file a Termination Form with the Texas Secretary of State.
Can a limited partner also be a general partner in Texas?
No, a limited partner cannot also be a general partner in Texas.
Can a general partner also be a limited partner in Texas?
Yes, a general partner can also be a limited partner in Texas.
Are there any residency requirements for partners in a Texas limited partnership?
No, there are no residency requirements for partners in a Texas limited partnership.
Can a limited partner participate in the management of the business in Texas?
No, a limited partner cannot participate in the management of the business in Texas.
What taxes do Texas limited partnerships pay?
Texas limited partnerships pay federal taxes on income, and any applicable local and state taxes.
How many limited partners can I have in my Texas limited partnership?
An unlimited number of limited partners can be included in your Texas limited partnership.
Can a foreign business entity be a partner in a Texas limited partnership?
Yes, a foreign business entity can be a partner in a Texas limited partnership.
How are profits and losses distributed in a Texas limited partnership?
Profits and losses are distributed according to the percentage of interest each partner has in the limited partnership.
Can a limited partner invest real estate instead of cash in Texas?
Yes, a limited partner can invest real estate instead of cash in Texas.
Do limited partners need to disclose their income or investment in a Texas limited partnership?
No, limited partners do not need to disclose their income or investment except to the extent required by law.
Is there a minimum capital requirement for a Texas limited partnership?
No, there is no minimum capital requirement for a Texas limited partnership.
What is a limited partnership?
A limited partnership is a type of business entity where there are one or more general partners who manage and control the business and are personally liable for its debts, and one or more limited partners who contribute capital but have limited liability.
What is a limited partnership agreement?
A limited partnership agreement is a legal document that sets out the terms and conditions of a limited partnership, including the rights and obligations of the general and limited partners, the nature of the business to be conducted, and the terms and conditions of the partnership.
How do I form a limited partnership in Texas?
To form a limited partnership in Texas, you must file a Certificate of Formation with the Secretary of State and pay the required filing fee.
Can I form a limited partnership by myself?
No, you must have at least one general partner and one limited partner to form a limited partnership.
Do I need to have a registered office in Texas to form a limited partnership in Texas?
Yes, you must have a registered office in Texas to form a limited partnership in Texas.
Can I use a PO Box as my registered office in Texas?
No, you must provide a physical address for your registered office in Texas.
What is the residency requirement for partners in a Texas limited partnership?
There is no residency requirement for partners in a Texas limited partnership.
Can I change the general partner of my limited partnership in Texas?
Yes, you can change the general partner of your limited partnership in Texas by amending your Certificate of Formation.
Can I change the limited partners of my limited partnership in Texas?
Yes, you can change the limited partners of your limited partnership in Texas, but you must follow the procedures set out in your partnership agreement and the Texas Business Organizations Code.
What taxes do limited partnerships in Texas have to pay?
Limited partnerships in Texas are pass-through entities for tax purposes, which means that the partners report their share of the partnership’s income on their individual tax returns. The partnership itself may be subject to franchise tax and other state taxes.
What is the certificate of formation for a Texas limited partnership?
The certificate of formation is a legal document that establishes a limited partnership in Texas and provides basic information about the partnership, such as its name, principal place of business, general partner(s), and registered agent.
Does Texas provide any special tax incentives or benefits for limited partnerships?
Texas has special tax incentives and benefits for certain types of businesses, but they do not apply specifically to limited partnerships.
What are the advantages of forming a limited partnership in Texas?
The advantages of forming a limited partnership in Texas include limited liability protection for limited partners, flexible management structure, and pass-through tax treatment.
Are limited partners involved in the daily operations of a Texas limited partnership?
No, limited partners are not involved in the daily operations of a Texas limited partnership and are not personally liable for the partnership’s debts.
What is the liability of a limited partner in a Texas limited partnership?
The liability of a limited partner in a Texas limited partnership is limited to the amount of capital they have contributed to the partnership.
What is the liability of a general partner in a Texas limited partnership?
The liability of a general partner in a Texas limited partnership is unlimited and they may be personally liable for the debts of the partnership.
Can a limited partner become a general partner in a Texas limited partnership?
Yes, a limited partner can become a general partner in a Texas limited partnership if they assume the responsibilities and liabilities of a general partner.
Can a Texas limited partnership have more than one general partner?
Yes, a Texas limited partnership can have more than one general partner.
Can a Texas limited partnership have more than one limited partner?
Yes, a Texas limited partnership can have more than one limited partner.
Can a Texas limited partnership be owned by a corporation or LLC?
Yes, a Texas limited partnership can be owned by a corporation or LLC.
Is a Texas limited partnership required to have an operating agreement?
No, a Texas limited partnership is not required to have an operating agreement, but it is recommended.
Can the partners of a Texas limited partnership determine their own division of profits and losses?
Yes, the partners of a Texas limited partnership can determine their own division of profits and losses as long as it is consistent with the partnership agreement and Texas law.
How can I dissolve a Texas limited partnership?
A Texas limited partnership can be dissolved by filing a Certificate of Termination with the Secretary of State and fulfilling all other dissolution requirements set out in Texas law.
Can the limited partners of a Texas limited partnership be held personally liable for the partnership’s debts?
No, the limited partners of a Texas limited partnership cannot be held personally liable for the partnership’s debts beyond their investment in the partnership.
What happens if a general partner dies or becomes incapacitated in a Texas limited partnership?
If a general partner dies or becomes incapacitated in a Texas limited partnership, the partnership agreement or Texas law may provide for the continuation of the partnership or the appointment of a new general partner.
What happens if a limited partner dies or becomes incapacitated in a Texas limited partnership?
If a limited partner dies or becomes incapacitated in a Texas limited partnership, their share of the partnership may pass to their heirs or beneficiaries, but they will not become a general partner unless they assume the responsibilities of a general partner”

Also Read

Conclusion

Starting a limited partnership in Texas can be a rewarding experience, providing you with the benefits of limited liability protection for passive investors and the opportunity to manage your business actively. By following the steps outlined in this article and staying on top of ongoing management and compliance tasks, you can establish a successful limited partnership and enjoy the benefits of this unique business structure.

Leave a Comment