Limited partnerships are those in which the liability of some, but not all, members is limited. They are formed under laws permitting an individual to contribute a specified sum to the capital of the firm and then, limit his liability for losses to the extent of that amount, provided compliance is had with certain established requirements.The Texas law on Limited partnerships is found in Chapter 153, Bus. Org. Code (effective January 1, 2006).
Forming and Amending
A limited partnership is a partnership formed by two or more persons having as members one or more general partners and one or more limited partners.
Texas law (3.011 TX. Bus. Org Code) provides that to form a limited partnership the partners must enter into a partnership agreement and file a certificate of formation with the Texas Secretary of State.
Certificate of Formation Requirements
As stated in the Tex. Business
Organizations Code § 3.005
(a) The certificate of formation must state:
(1) the name of the filing entity being formed;
(2) the type of filing entity being formed;
(3) for filing entities other than limited partnerships, the purpose or
purposes for which the filing entity is formed, which may be stated to
be or include any lawful purpose for that type of entity;
(4) for filing entities other than limited partnerships, the period of
duration, if the entity is not formed to exist perpetually;
(5) the street address of the initial registered office of the filing
entity and the name of the initial registered agent of the filing
entity at the office;
(6) the name and address of each:
(A) organizer for the filing entity, unless the entity is formed
under a plan of conversion or merger;
(B) general partner, if the filing entity is a limited partnership;
(C) trust manager, if the filing entity is a real estate investment
(7) if the filing entity is formed under a plan of conversion or
merger, a statement to that effect and, if formed under a plan of
conversion, the name, address, date of formation, prior form of
organization, and jurisdiction of formation of the converting entity;
(8) any other information required by this code to be included in the
certificate of formation for the filing entity.
(b) The certificate of formation may contain other provisions not inconsistent with law relating to the organization, ownership, governance, business, or affairs of the filing entity.
(c) Except as provided by Section 3.004, Chapter 4 governs the signing and filing of a certificate of formation for a domestic entity.
Effect of Failure to File the Certificate--Defective Formation
It is the act of filing or recording the certificate that creates the limited liability. The certificate is a statutory prerequisite to the creation of a limited partnership, and until it is filed, the partnership is not formed as a limited partnership.
The general conduct and management of the business of a limited partnership denied to limited partners by virtue of Title 4, Ch. 153 TX Bus. Org. Code are vested in the general partners by virtue of Title 4, Ch. 152 TX Bus. Org. Code.
The rights, powers and duties of a general partner are made (with certain additional restrictions) analogous to those of a partner of an ordinary general partnership.
Without the written consent or ratification of the specific act by all of the limited partners, neither a general partner has nor all the general partners have authority to:
- Do any act in contravention of the certificate.
- Do any act which would make it impossible to carry on the ordinary business of the partnership.
- Confess a judgment against the partnership.
- Possess partnership property, or assign their rights in specific partnership property for other than a partnership purpose.
- Admit a person as a general partner.
- Admit a person as a limited partner, unless the right to do so is provided in the certificate.
Sec. 153.153 TX Bus. Org. Code provides that a general partner can be a general partner and a limited partner in the same limited partnership. The person then has unlimited liability to the extent of his general partner status and has limited liability to the extent of this limited partnership interest.
Real Property Transactions
A limited partnership may take and convey title to real property under the same rules as a general partnership.
All limited partners should join in the execution of any real estate instrument, unless:
- There is authority for less than all of them to act (this authority must be set forth in the partnership agreement).
- The consent of all the limited partners is required by agreement. (This consent, if necessary, should not be expressed by a joinder of the limited partners in executing the documents. To do so might impair the certain immunity the limited partners enjoy if they do not engage in the management of the partnership affairs.)
In the event the limited partnership conveys all, or substantially all, of the assets of the partnership, the consent of the limited partners should be required.
The general provisions of the TX Bus. Org. Code also apply to limited partnerships.
Qualifications of a Foreign Limited Partnership
Sec. 9.001 TX Bus. Org. Code provides that to do business in Texas, a foreign limited partnership must register with the Texas Secretary of State. It must maintain its registration as a limited partnership while transacting business in Texas.
Art. 9.007 TX Bus. Org. Code requires that the foreign limited partnership application must contain the following:
1) The federal tax identification number of the partnership;
2) The date of initial registration as a limited liability partnership under the laws of the state of formation;
3) The number of partners at the date of the statement; and
4) That the secretary of state is appointed the agent of the partnership for service of process under the circumstances set forth by Section 5.251.