A Texas limited partnership is a business entity with at least one general partner who runs the operation and carries personal liability for its debts, and at least one limited partner who invests money but stays out of management and risks only what they put in.1State of Texas. Texas Business Organizations Code Chapter 153 – Limited Partnerships The structure is governed by Chapter 153 of the Texas Business Organizations Code, but most of the everyday rules come from the partnership agreement the partners write themselves. That combination — a short state filing plus a detailed private agreement — is what makes the LP work for real estate deals, investment funds, and family wealth planning.
How to Form One
Formation starts with a Certificate of Formation (Form 207) filed with the Texas Secretary of State.2Texas Secretary of State. Certificate of Formation – Limited Partnership The filing fee is $750. The certificate lists every general partner by name and address, because those are the people or entities whose personal assets are exposed. Limited partners are not named on the certificate, which gives them a measure of privacy other entity types don’t.
The name must include “limited,” “limited partnership,” or an abbreviation like “L.P.” or “LP.” It cannot contain the name of a limited partner unless that person is also a general partner or the business was already operating under that name before the limited partner joined.1State of Texas. Texas Business Organizations Code Chapter 153 – Limited Partnerships
Every LP must designate a registered agent with a physical Texas street address who accepts legal documents on the LP’s behalf.3Texas Secretary of State. Form 207 – Certificate of Formation Limited Partnership The agent can be a Texas resident or another entity authorized to do business in the state. If the agent lapses, service of process can happen without your knowing, and you may not learn about a lawsuit until a default judgment lands.
After the state filing, the LP needs a federal Employer Identification Number from the IRS. Partnerships are required to have one.4Internal Revenue Service. Get an Employer Identification Number Form the LP with the state first, because the EIN application can stall if the entity doesn’t yet exist in state records.
Partners can be individuals, corporations, LLCs, or other partnerships. Texas imposes no residency or citizenship rules. A foreign entity that transacts business in Texas has to register with the Secretary of State under BOC Chapter 9, and that applies to foreign LPs, LLCs, corporations, and anything else that provides limited liability under its home jurisdiction.5State of Texas. Texas Code BUS ORG 9.001 – Registration Requirement
What General Partners Do — and What They Owe
General partners run the business. They sign contracts, make financial calls, hire people, and set direction. In return for that authority, they take on unlimited personal liability for the LP’s debts. A creditor the LP can’t pay can go after the general partner’s house, savings, and other personal assets.
That is why most Texas LPs put an LLC or corporation in the general partner slot instead of a natural person. The entity holds the management role and the personal-liability exposure, and the humans behind it get whatever liability shield the LLC or corporation provides.
General partners also owe fiduciary duties to the LP and the other partners. The duty of loyalty rules out self-dealing, competing with the partnership, or taking partnership opportunities for personal gain. The duty of care requires reasonably informed decisions and rules out reckless or grossly negligent management. A partnership agreement can adjust how these duties operate, but it can’t eliminate them.
What Limited Partners Can Do Without Losing Protection
A limited partner’s liability is capped at their investment. If the LP is sued or fails, creditors can’t reach a limited partner’s personal assets — as long as that limited partner stayed out of managing the business. A limited partner who starts making operational decisions risks being treated like a general partner, and courts look at the whole pattern of involvement when deciding whether the line was crossed.
The BOC lists safe-harbor activities that don’t count as participating in control. Limited partners can generally do the following without giving up the shield:
- Vote on major decisions such as mergers, asset sales, dissolution, or amendments to the partnership agreement
- Consult with general partners and offer advice on operations
- Guarantee LP debts or obligations
- Serve as an officer or director of the general partner entity, which is common when the GP is an LLC or corporation
- Request information, inspect books, demand accountings, and attend partner meetings
There is more room for limited partners to participate than many people assume. When something falls into a gray area, the safer move is to have the partnership agreement authorize it explicitly.
The Partnership Agreement Is Where the Real Rules Live
The partnership agreement is the LP’s operating document. It isn’t filed with the state, and almost every question that matters is answered there rather than in the statute. Texas treats most of Chapter 153 as default rules the partners can override by agreement.
A workable agreement addresses at least:
- Capital contributions and whether future capital calls are allowed
- How profits, losses, and deductions are allocated
- When and how cash gets distributed
- What the general partner can decide alone and what needs limited partner approval
- Restrictions on selling or assigning partnership interests
- How internal disputes get resolved
- What events trigger dissolution beyond the statutory defaults
Texas sets no minimum contribution for limited partners. Whatever the agreement calls for — cash, property, or a promise of future contribution — is what applies. A partner who fails to make a promised contribution can be held personally liable for the shortfall.
Transferring Interests and Admitting New Partners
LP interests do not trade like corporate stock. A partner can usually assign the economic rights in their interest — the right to receive distributions — without anyone’s permission unless the agreement restricts it.6Texas Public Law. Texas Business Organizations Code 153.251 – Assignment of Partnership Interest But the assignee doesn’t become a partner. They collect distributions and receive tax allocations, and that’s it. No vote, no access to books, no management role.
To actually become a partner, the new person has to be formally admitted under whatever process the partnership agreement lays out. If the agreement is silent, admission requires the written consent of all existing partners.1State of Texas. Texas Business Organizations Code Chapter 153 – Limited Partnerships
Involuntary transfers can happen through divorce, bankruptcy, or a creditor judgment. On the creditor side, Texas allows a charging order, which lets the creditor collect whatever distributions the debtor-partner would have received.7State of Texas. Texas Business Organizations Code 153.256 – Partners Partnership Interest Subject to Charging Order The creditor can’t vote, manage, or take partnership property. Many LP agreements add buy-sell provisions or rights of first refusal to keep outside parties from ending up with even the economic interest.
How the LP Is Taxed
A Texas LP is a pass-through entity federally. The LP files an information return on Form 1065 and issues a Schedule K-1 to each partner showing their share of income, deductions, and credits.8Internal Revenue Service. About Form 1065, U.S. Return of Partnership Income Partners report those amounts on their own returns.
Self-employment tax is where general and limited partners split sharply. A general partner’s full distributive share of ordinary business income is self-employment income, subject to Social Security and Medicare tax. A limited partner owes self-employment tax only on guaranteed payments for services rendered, not on the distributive share of profits.9Internal Revenue Service. Are Partners Considered Employees of a Partnership or Are They Considered Self-Employed For passive investors, that difference is often the single biggest reason to use an LP.
Annual State Compliance
Every Texas LP files a Public Information Report with the Comptroller by May 15 each year, updating contact information, officers, and ownership.10Texas Comptroller of Public Accounts. Franchise Tax Missing that deadline can lead to forfeiture of the LP’s right to transact business in Texas, which effectively freezes the entity until the filings are caught up.
LPs are also subject to the Texas franchise tax. The rate is 0.375% of taxable margin for retail and wholesale businesses and 0.75% for everyone else.10Texas Comptroller of Public Accounts. Franchise Tax For the 2026 report year, an LP with total revenue at or below $2,650,000 owes no franchise tax, though it still has to file a report or the no-tax-due form.
One boundary worth flagging: the Corporate Transparency Act’s beneficial ownership information (BOI) reporting rules originally covered most LPs, but a March 2025 FinCEN rule exempts all entities formed in the United States.11FinCEN. Beneficial Ownership Information Reporting Only entities formed under foreign law and registered to do business in a U.S. state currently have to report. A Texas LP formed domestically doesn’t file a BOI report under the current rule, though FinCEN could change that.
Dissolving and Terminating an LP
Dissolution starts with a triggering event — a vote by the partners as specified in the agreement, the expiration of the LP’s stated term, or the withdrawal of the last general partner. When the last general partner leaves, the remaining partners have up to one year to agree in writing to continue the business and appoint a new general partner.12State of Texas. Texas Business Organizations Code 153.501 – Cancellation or Revocation of Event Requiring Winding Up; Continuation of Business If the trigger is expiration of the LP’s duration rather than a partner withdrawal, the window is 90 days. Miss the window and the LP has to wind up.
Winding up means no new business, only cleanup. The LP notifies known creditors, collects what’s owed to it, liquidates assets, pays obligations, and distributes what’s left to the partners according to their interests.13State of Texas. Texas Code BUS ORG 11.052 – Winding Up the Business and Affairs of Domestic Entity The LP can still bring or defend lawsuits during this period.
The last step is filing a Certificate of Termination with the Secretary of State. Franchise tax obligations have to be cleared first, including a final report. If you skip the termination filing, the entity stays on the books, the Comptroller keeps expecting reports and payments, penalties pile up, and the general partners can end up personally on the hook for what should have been a clean closeout.