Texas partnership law recognizes three structures, and the differences between them decide whether your personal assets are on the line for the business. A general partnership forms automatically the moment two or more people carry on a business for profit as co-owners, with no filing required and unlimited personal liability for every partner.1State of Texas. Texas Business Organizations Code Section 152.051 – Partnership Defined Limited partnerships and limited liability partnerships require Secretary of State filings and offer real protection, but only if you follow the rules. The core statutes sit in Chapters 152 and 153 of the Texas Business Organizations Code.
The Three Partnership Types
General Partnership
The general partnership is the default form, and that is the problem with it. It exists whether or not the partners intended to create one, whether or not anything is in writing, and whether or not they ever used the word partnership.1State of Texas. Texas Business Organizations Code Section 152.051 – Partnership Defined Every partner shares equally in management, profits, and losses unless the agreement says otherwise. Every partner also carries unlimited personal liability for the partnership’s debts and is jointly and severally liable for the other partners’ actions taken on behalf of the business.
No state filing. No filing fee. No formal paperwork. That accessibility is exactly what makes people end up in general partnerships without meaning to.
Limited Partnership
A limited partnership splits partners into two classes. General partners run the business and accept full personal liability. Limited partners contribute capital and stay passive, and their exposure is generally capped at what they invested. Formation requires a Certificate of Formation with the Secretary of State and a $750 filing fee.2State of Texas. Texas Business Organizations Code Section 4.155 – Filing Fees: Limited Partnerships
The protection for limited partners has a limit of its own. Under Section 153.102, a limited partner who participates in control of the business becomes liable to anyone who reasonably believed, based on the limited partner’s conduct, that they were dealing with a general partner.3State of Texas. Texas Business Organizations Code Section 153.102 – Liability to Third Parties The liability runs only to third parties who were actually misled, not to every creditor. LPs show up most often in real estate deals and private equity structures where passive investors want the pass-through tax treatment without the exposure.
Limited Liability Partnership
An LLP gives every partner protection from the negligence, malpractice, or misconduct of the other partners.4State of Texas. Texas Business Organizations Code Section 152.801 – Liability of Partner Registration requires an Application for Registration with the Secretary of State and a fee of $200 per general partner.5Office of the Texas Secretary of State. Formation of Texas Entities FAQs An LLP cannot be created from scratch; the underlying general or limited partnership must already exist, and the LLP registration is layered on top.
A widespread misconception: Texas LLPs no longer renew their registration annually. That requirement was repealed in 2016, and registration now continues until the partnership voluntarily withdraws it or the Secretary of State terminates it.6State of Texas. Texas Business Organizations Code Section 152.802 – Registration The annual report is a separate obligation. LLPs must file it with the Secretary of State by June 1 each year, and failure to file can lead to termination of the registration. That creates a gap where the partnership continues to exist but the liability shield does not.5Office of the Texas Secretary of State. Formation of Texas Entities FAQs Law firms and accounting practices are the classic LLP users.
Why a Written Agreement Matters
Texas does not require a written partnership agreement. Section 152.002 lets partners customize almost every aspect of their relationship, subject to a handful of non-waivable rules.7State of Texas. Texas Business Organizations Code Section 152.002 – Effect of Partnership Agreement Without a written agreement, statutory defaults fill the gaps, and the defaults regularly produce results the partners never wanted.
The clearest example is profit allocation. The default rule is an equal split regardless of what each partner contributed. If one partner put in $500,000 and the other put in $50,000, the statute still splits profits 50/50 unless the agreement says otherwise. A good written agreement covers profit and loss allocation, management authority, capital contributions and whether more can be required later, dispute resolution procedures, and exit provisions such as buy-sell clauses and valuation methods. Partners who skip this step tend to be the ones litigating three years later over what a handshake conversation actually meant.
Partner Rights and Duties
Financial and Information Rights
Every partner is entitled to an equal share of profits and chargeable with an equal share of losses under the default rule, and capital contributions do not shift that balance automatically. Every partner also has the right to inspect and copy the partnership’s books and records at the principal office during ordinary business hours. Former partners retain access to records from the period when they were partners, and the partnership may charge a reasonable fee for copies.8Texas Legislature. Texas Business Organizations Code Chapter 152 – General Partnerships – Section 152.212
Fiduciary Duties
Partners owe each other a duty of loyalty and a duty of care. The duty of loyalty forbids self-dealing, diverting partnership opportunities, and competing with the partnership without consent. The duty of care requires partners to act with the care an ordinarily prudent person would exercise in similar circumstances and to act in good faith when conducting or winding up partnership business.9State of Texas. Texas Business Organizations Code Section 152.302 – Duty of Care Remedies for breach include damages, disgorgement of improperly obtained profits, and injunctive relief.
Wrongful Withdrawal
A partner can generally leave at any time, but leaving in violation of the partnership agreement is wrongful. A partner who wrongfully withdraws is liable to the partnership and the other partners for the damages the withdrawal causes, on top of any other obligations already owed.10State of Texas. Texas Business Organizations Code Section 152.503 – Wrongful Withdrawal A partner who walks out of a five-year commitment after two years can be pursued for the economic harm the early exit caused.
Management and Transfers
In a general partnership, every partner has an equal voice unless the agreement says otherwise. Ordinary-course decisions require a majority-in-interest; anything outside the ordinary course of business requires unanimous consent.11State of Texas. Texas Business Organizations Code Section 152.209 – Decision-Making Requirement What counts as ordinary course depends on the business. In an LP, general partners manage and limited partners stay passive; a limited partner who starts making management calls risks liability to third parties who were misled.3State of Texas. Texas Business Organizations Code Section 153.102 – Liability to Third Parties LLPs keep the flexible general-partnership management model and often layer on a managing partner or executive committee for daily decisions.
Transfer of a partnership interest is more limited than most people assume. A partner may transfer all or part of their interest, but the transferee only receives the economic benefits, such as distributions, that the transferring partner would have received. The transfer does not confer management rights, does not grant access to partnership records, and does not by itself trigger dissolution or count as a withdrawal.12Texas Legislature. Texas Business Organizations Code Chapter 152 – General Partnerships – Sections 152.401 and 152.402 Most agreements go further and restrict transfers with rights of first refusal and agreed valuation methods.
Taxes
Texas has no personal income tax, so partnership income flows through to the partners’ federal returns without a state income tax layer. Texas does impose a franchise tax on most business entities including partnerships. For the 2026 reporting year, partnerships with annualized total revenue at or below $2,650,000 owe no franchise tax.13Texas Comptroller of Public Accounts. Franchise Tax
Federally, every partnership files Form 1065 each year even though the partnership itself pays no income tax. Calendar-year partnerships must file by March 15, and each partner receives a Schedule K-1 showing their share of income, deductions, and credits.
Self-employment tax is where partners often get surprised. Active partners in a general partnership owe self-employment tax on their share of partnership income. Limited partners in an LP can generally avoid self-employment tax on their distributive share under Section 1402(a)(13) of the Internal Revenue Code, which excludes income received by a limited partner “as such.” In January 2026, the Fifth Circuit confirmed in Sirius Solutions LLLP v. Commissioner that this exception turns on whether the partner has limited liability, not on a multifactor look at their day-to-day involvement.14Miller & Chevalier. Limited Partners in Limited Partnerships Need Only Limited Liability for the Exception to Self-Employment Tax
Ending the Partnership
A Texas partnership must wind up its affairs when the stated term expires, when the partners vote to dissolve, when a triggering event in the governing documents occurs, or when a court orders dissolution.15State of Texas. Texas Business Organizations Code Section 11.051 – Event Requiring Winding Up of Domestic Entity Courts typically step in when the business has hit irreconcilable deadlock or partners have committed serious misconduct.
Winding up means settling debts, collecting receivables, liquidating assets, and distributing what remains. Creditor claims come before partner distributions. General partners stay personally liable for outstanding partnership debts after dissolution unless creditors specifically release them. LPs and LLPs must file a Certificate of Termination with the Secretary of State to formally end their existence.16Office of the Texas Secretary of State. Form 651 – Instructions for Certificate of Termination of a Domestic Entity General partnerships have no state filing, but should still notify creditors and relevant agencies. Every partnership must file a final Form 1065, checking the “final return” box on the return and the “final K-1” box on each partner’s Schedule K-1.17Internal Revenue Service. Closing a Business Skipping that final return is a common oversight that generates automatic penalties.
When Partners Disagree
Disputes over management, contributions, and fiduciary breaches are common, especially in partnerships that operate on a handshake. Many written agreements route conflicts through mediation or arbitration before anyone can sue. When cases reach court, judges can enforce the agreement, award damages for fiduciary breaches, order disgorgement of improperly taken profits, or dissolve the partnership if it cannot function. The partnerships that avoid expensive litigation almost always share two things: a written agreement that anticipated common friction points, and a governance structure that does not require unanimity for routine decisions. Unanimity requirements for daily operations tend to produce paralysis, particularly as the partnership grows.