Delaware LP Act: Formation, Liability, and Dissolution

The Delaware Revised Uniform Limited Partnership Act, found at Title 6, Chapter 17 of the Delaware Code, governs how limited partnerships are formed, operated, and dissolved in Delaware, and its central move is to defer to whatever the partners negotiate in their partnership agreement. The statute states its own policy plainly: to give “maximum effect to the principle of freedom of contract and to the enforceability of partnership agreements.”¹ That orientation shapes every piece of the Act, and it explains why so many investment funds, real estate ventures, and family wealth structures pick Delaware over other jurisdictions.

What the Act Requires to Form an LP

Formation starts with filing a Certificate of Limited Partnership with the Delaware Secretary of State. The certificate needs four things: the partnership’s name, the name and address of a Delaware registered agent, and the name and address of each general partner.² Partners can add more, but that is the full statutory list. The filing fee is $200.³

The certificate does not disclose limited partners, the partnership agreement, or any financial details. The public record stays thin on purpose. The substance of the partnership lives in the partnership agreement, which is private and never filed with the state.

Every Delaware LP must have at least one general partner and one limited partner. The general partner runs the business and is personally liable for partnership obligations. Limited partners contribute capital, share in profits, and stay out of day-to-day management, which is what preserves their liability shield. This division between an active, exposed general partner and passive, protected limited partners is the defining feature of the structure.

A common way to avoid individual exposure is to use a corporation or LLC as the general partner. Because the entity itself is the general partner, no human being bears unlimited liability for the partnership’s debts. The Act supports this layered arrangement without special requirements.⁴

Why the Partnership Agreement Does the Heavy Lifting

Under DRULPA, the partnership agreement is the primary governing document, and the statute repeatedly steps back in favor of whatever the partners negotiate. Profit allocation, distribution schedules, voting rights, management authority, admission of new partners, transfer restrictions, and dissolution triggers are all set by the agreement rather than by the Act.

The freedom runs further than most people expect. The partnership agreement can modify or eliminate fiduciary duties that partners would otherwise owe each other. It can limit or eliminate liability for breach of contract and breach of duties, including fiduciary duties. The only thing it cannot eliminate is the implied covenant of good faith and fair dealing, and it cannot wipe out liability for bad faith violations of that covenant.¹ That floor is real but it is low. Anyone relying on background fiduciary protections without reading the agreement carefully can end up with far fewer rights than assumed.

DRULPA does not require the agreement to be in writing, though in practice a written document is standard. The agreement can also route disputes through arbitration or mediation if the partners prefer to avoid court.

How Limited Partners Keep Their Liability Shield

A limited partner’s exposure is capped at their capital contribution. Partnership creditors cannot reach their personal assets, as long as the limited partner does not cross into actual management control. Section 17-303 then draws that control line generously, listing activities that do not count as participating in control:

Serving as an employee, independent contractor, or agent of the LP or its general partner, or as an officer, director, or shareholder of a corporate general partner.
Consulting with or advising the general partner on any matter, including partnership business, or voting to approve or disapprove any action.
Acting as surety or guarantor for the partnership, or lending money to or borrowing money from the LP or the general partner.
Calling, requesting, attending, or participating in partner meetings.
Participating in the winding up of the partnership after dissolution.
Bringing, pursuing, or settling a derivative action on behalf of the partnership.
Serving on a committee of the partnership or appointing representatives to such a committee.

The list is broad.⁵ A limited partner can vote on major transactions, sit on an advisory committee, lend the partnership money, and serve as an officer of a corporate general partner without jeopardizing the shield. In practice, limited partners in a well-drafted Delaware LP can exercise meaningful oversight while staying protected.

Limited partners also have information rights. They can demand the partnership’s financial condition, tax returns, a list of all partners and their addresses, and copies of the partnership agreement and certificate.⁶ The partnership agreement can set reasonable standards for how and when this information is produced, but it cannot eliminate the right. Limited partners owe no fiduciary duties to the partnership or to other partners; their role is economic.

What General Partners Owe and Can Delegate

The general partner carries the default fiduciary duties of loyalty and care toward the partnership and its limited partners. Absent modification in the agreement, that means acting in good faith, avoiding self-dealing, and not diverting partnership opportunities for personal benefit. The partnership agreement can narrow or eliminate those duties, subject only to the good faith floor.⁴

General partners also have broad delegation authority. Unless the agreement says otherwise, a general partner can delegate any or all of its management rights and duties to agents, officers, employees, or third parties. Delegating does not strip the general partner of its status, and the person accepting delegated powers does not become a general partner by doing so.⁴

On the liability side, general partners face personal exposure for partnership obligations, which is why the entity-as-general-partner structure matters. A judgment creditor of a general partner cannot levy execution against the general partner’s personal assets on a partnership claim unless a judgment has first been obtained against the partnership itself and partnership assets are insufficient to satisfy it.⁴

Transferring a Partnership Interest

Unless the partnership agreement restricts it, a partnership interest is assignable in whole or in part. An assignment transfers the right to receive distributions and allocations of income, gain, and loss. It does not make the assignee a partner. The assignee has no right to vote, access partnership records, or participate in management; only the economic rights move.⁷

A partner who assigns all of its interest ceases to be a partner. Merely pledging an interest as collateral or granting a security interest in it does not strip the partner of its status or rights unless the agreement says otherwise.⁷ The agreement can also authorize the LP itself to buy back interests from partners; any interest the partnership acquires is deemed canceled.

Annual Costs to Keep an LP in Good Standing

Every Delaware LP, domestic or foreign-registered, owes an annual franchise tax of $300. Payment for the prior year is due by June 1, and no annual report accompanies it. A late payment triggers a $200 penalty plus 1.5% interest per month on the unpaid tax and penalty.⁸ The tax applies for any year the entity is active in the Division of Corporations’ records at any point from January 1 through December 31.

The LP must also maintain a Delaware registered agent. Professional registered agent services generally run between $35 and $350 per year, depending on the provider.

For federal income tax, a Delaware LP is a pass-through. The partnership itself does not pay federal income tax. It files Form 1065, and each partner receives a Schedule K-1 reporting their share of partnership income, deductions, gains, and losses. Partners owe tax on their allocated share whether or not they actually received a distribution that year.⁹

How a Delaware LP Dissolves and Winds Up

What Triggers Dissolution

A Delaware LP dissolves on the first of several events. The most common are:

A time or event specified in the partnership agreement. If the agreement sets no end date, the LP has perpetual existence.
A partner vote. Unless the agreement provides otherwise, dissolution requires the consent of all general partners plus limited partners holding more than two-thirds of the profits interest.
Withdrawal of the last general partner, if the remaining partners do not vote to continue the business and appoint a new general partner within 90 days (or another period set in the agreement).
Loss of the last limited partner, if the remaining partners do not admit a replacement within 90 days.
Judicial dissolution. The Court of Chancery can order dissolution when it is not reasonably practicable to carry on the business in conformity with the partnership agreement.

These triggers come from sections 17-801 and 17-802.¹⁰¹¹ The agreement can override several of these defaults, which is why the dissolution provisions deserve careful drafting.

Winding Up

Once dissolution occurs, the partnership enters winding up. General partners who did not wrongfully cause the dissolution typically handle the process. If no general partner is available, limited partners holding more than 50% of the profits interest can take over, or the Court of Chancery can appoint a liquidating trustee on any partner’s application.¹¹

During winding up, whoever is managing can keep the partnership operating in a limited way: prosecuting and defending lawsuits, settling the business, disposing of property, paying debts, and distributing remaining assets. A liquidating trustee who performs these tasks does not take on general partner liability simply by serving.

How Assets Are Distributed

Section 17-804 sets a clear priority. Creditors (including partners who are also creditors) get paid first. Next come any unpaid distribution obligations owed to current and former partners. Remaining assets then go to partners, first as a return of capital contributions and then in proportion to their partnership interests.¹² If assets are insufficient to cover all claims at the same level, those claims are paid ratably. The agreement can alter the order among partners, but creditors always come first.

Certificate of Cancellation

Once winding up is finished, the partnership files a certificate of cancellation with the Secretary of State. The certificate includes the LP’s name, the original certificate filing date, and the names of any registered series not already canceled.¹³ Until that filing, the partnership continues to exist for purposes of winding up, even though it has formally dissolved.

Registering a Foreign LP in Delaware

If a limited partnership formed in another state wants to do business in Delaware, DRULPA requires registration with the Secretary of State before operations begin. The application needs the LP’s name, its jurisdiction of formation, the nature of business it will conduct in Delaware, a Delaware registered agent, and the names and addresses of all general partners.¹⁴ A certificate of existence from the home jurisdiction dated within six months must accompany the filing. A registered foreign LP owes the same $300 annual franchise tax as a domestic Delaware LP.⁸

Delaware law treats the internal affairs of a foreign LP, and the liability of its limited partners, as governed by the law of its home jurisdiction. Registering here does not change that.

1
Justia. Delaware Code 6-17-1101 – Construction and Application of Chapter and Partnership Agreement
2
Justia. Delaware Code 6-17-201 – Certificate of Limited Partnership
3
Delaware Division of Corporations. Certificate of Limited Partnership
4
Delaware Code Online. Delaware Code Title 6 Chapter 17 Subchapter IV – General Partners
5
Delaware Code Online. Delaware Code Title 6 Chapter 17 Subchapter III – Limited Partners
6
Justia. Delaware Code 6-17-305 – Access to and Confidentiality of Information; Records
7
Justia. Delaware Code 6-17-702 – Assignment of Partnership Interest
8
Delaware Division of Corporations. LLC/LP/GP Franchise Tax Instructions
9
Internal Revenue Service. Partners Instructions for Schedule K-1 (Form 1065)
10
Justia. Delaware Code 6-17-801 – Nonjudicial Dissolution
11
Delaware Code Online. Delaware Code Title 6 Chapter 17 Subchapter VIII – Dissolution
12
Justia. Delaware Code 6-17-804 – Distribution of Assets
13
Justia. Delaware Code 6-17-203 – Cancellation of Certificate
14
Delaware Code Online. Delaware Code Title 6 Chapter 17 Subchapter IX – Foreign Limited Partnerships