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Limited Partnership

What is a Limited Partnership or LP?

A Texas limited partnership is an organization formed to act as an artificial entity or artificial person to carry on or conduct business. A limited partnership is a partnership composed of at least one general partner and one or more limited partners. The general partner directs and manages the business and carries full liability for all debts and financial obligations of the business, as well as full responsibility for all errors, omissions, and negligence of the business. Limited partners contribute capital and other resources to the business; they are generally not responsible for the debts, obligations or actions of the business; but they generally cannot participate in the management of the business (although there are limited exceptions to this general concept).

Limited partnerships at one time escaped the application of the Texas franchise tax. Therefore, this form of business structure was frequently chosen to legally avoid collection of the Texas franchise tax, while also affording the limited partners limited liability.  However, forming a LP is significantly more expensive because more often than not two entities must be formed: (1) normally a corporation or a limited liability company must be formed to serve as the general partner for the LP; and (2) the limited partnership entity itself must also be formed.  Currently the statutory fee payable to the Texas Secretary of State to file the Certificate of Formation for a limited partnership  is $750 plus $25 for that office’s expedited handling fee service (these fees are in addition to the filing fees to form the general partner entity).

Input from your certified public accountant on the choice of entity is an absolute must before the entity is organized.  Your CPA knows your tax situation, and his or her counsel more often than not dictates their preference for the choice of your entity.  I regularly assist clients in the organization of their Texas limited partnerships.  The counsel of a Texas attorney is especially critical in the formation of limited partnerships because of their complexity.

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