PowerPoint - Chapter 04 - Limited Partnerships - Accessible

Chapter 4
LIMITED PARTNERSHIPS
INTRODUCTION
LIMITED PARTNERSHIPS:
THE LEGISLATURE’S SOLUTION TO
A WEAKNESS OF GENERAL PARTNERSHIPS
INTRODUCTION
The Problem
• Many people with money to invest in a business want to buy
into the business but leave the management to others. The
investors simply want a cut of the profits.
• However, investing in a general partnership
(which we examined in Chapter 3) subjects
the investors, as partners, to unlimited joint
and several personal liability for both (1) the
partnership’s debts and contractual
obligations; and (2) the wrongdoing of other
partners in connection with the business.
INTRODUCTION
The Problem
• Investors in a general partnership have this liability even
though they may not be involved in managing the business.
• General partnerships found it difficult to
find investors to invest in the business
because few investors were willing to
expose their personal assets to this
unlimited liability. I’m
outta
here!
INTRODUCTION
Limited Partnerships to the Rescue!
• In response to this problem, state legislatures created a new
type of partnership—the limited partnership (LP).
• Limited partnerships have two tiers of partners:
• General partners, who run the business and have all the liability of
partners in a general partnership; and
• Limited (silent) partners, who invest in the business but do not
participate in controlling it. In exchange for giving up control, they
have no personal liability (beyond what they invested in the
business).
INTRODUCTION
Limited Partnerships to the Rescue!
• In limited partnerships, wealthy persons have the opportunity to
invest in a businesses without exposing all their assets to
personal liability.
• This type of partnership is called a limited
partnership to distinguish it from a
general partnership.
I’m
back!
INTRODUCTION
Welcome to the Land of Filing Entities
• Because LPs are creatures of statute, they are filing entities.
That is, they do not legally exist until the required paperwork is
filed with the secretary of state and the appropriate fee is paid.
• All of the remaining business entities we will study in this
course are also filing entities. Only sole proprietorships and
general partnerships are non-filing entities.
THE 11
CONSIDERATIONS
Limited partnership (LP)
=
business entity created in accordance with
state statutes that has 1 or more “general” partners and
1 or more “limited” partners, with limited partners having
limited liability but no participation in management
CONSIDERATIONS
Filing entity
1 Formation
• Disadvantage: more complicated and costly to form
Two or more human beings or other business entities
(e.g., partnerships or corporations)
• Advantages
• Wealthy people can invest money in the enterprise
knowing in advance their maximum exposure is
limited to the amount of their contributions.
• If additional capital is needed, new limited
partners may be easily admitted to the partnership
2 Ownership
without the general partners surrendering any of
their ability to manage and control the business.
• As long as a limited partner does not participate in
control of the business or knowingly allow his or
her name to be used in the business name, he or
she will not be liable for any amount beyond his or
her contributions to the business.
(continued)
CONSIDERATIONS
(continued)
• Disadvantages
• Investors who prefer to manage their own
Ownership investments cannot do so without losing limited
2
(continued) liability status.
• Because general partner(s) has full authority to
manage the business, limited partners must have
complete confidence in him or her.
3 Activity Must be for-profit business (and legal)
Limited partnership agreement required—oral,

written, or implied
4 Agreement
• Written agreement is preferable because it provides
certainty in the event of a dispute among partners.
CONSIDERATIONS
• State law applies in ways that include the following:
• Revised Uniform Limited Partnership Act (RULPA)
(1) limits personal liability for limited partners in
exchange for their not managing the business;
and (2) supplies default provisions where LP
Governing
5 agreement is silent and some mandatory terms.
Law
• State law also regulates assumed/trade names,
business licenses, and sales/unemployment/state
income taxes.
• Federal law applies in terms of federal income tax
laws, anti-discrimination laws, OSHA regulations, etc.
Partners can either (1) share management and rely on
Manage- each other for expertise and advice; and/or (2) appoint
6
ment certain partners or committees to manage the business.
• Advantage: very flexible management
CONSIDERATIONS
• Advantage: Partners share losses.
Profits- • Disadvantage: Partners share profits.
7 Losses If the partnership agreement is silent on this issue,
Allocation RULPA provides that they will share in proportion to
their capital contributions.
Disadvantage for general partners because they have
unlimited joint and several personal liability for:
• Debts and contractual obligations of the business
• Other partners’ wrongdoing
Personal • (Also wrongdoing by employees committed in course
8
Liability and scope of employment)
Advantage for limited partners because their personal
liability is limited to their investment in the business
provided they do not participate in controlling the
business.
CONSIDERATIONS
• LPs do not necessarily dissolve upon withdrawal of a
general partner as long as (1) there is at least 1 other
general partner; and (2) the parties’ agreement
permits the business to be continued by the
remaining general partner.
9 Continuity
• Withdrawal of limited partners generally does not
cause dissolution because they do not control the
business. (Although returning their capital may force
LP out of business if it cannot find replacement funds
or continue running the business without them.)
CONSIDERATIONS
• Assignee of limited partner’s interest will become
new limited partner if the LP agreement allows it or if
Transfer- all other partners agree.
10 ability of • Limited partner generally has right to withdraw from
Interest partnership and demand return of contributions upon
giving 6 months’ written notice to each general
partner.
Federal
11 Income Advantage: pass-through tax status
Taxation
GOVERNING
STATE LAW
Limited partnerships are governed
by the law of the state in which they are formed.
RULPA
GOVERNING STATE LAW
Revised Uniform Limited Partnership Act (RULPA)
• As filing entities, LPs are creatures of statute. All states except
Louisiana base their LP statutes on the Revised Uniform
Limited Partnership Act (RULPA).
• However, RULPA has been revised twice (in 1985 and 2001),
not every state has adopted the latest amendments, and
variations exist from state to state.
• Primary purposes of RULPA
• To afford limited liability to limited partners, who in exchange forego
any management of the partnership, so that their maximum
potential loss is their investment in the enterprise
• To act as a default statute for LPs if a dispute arises on some issue
on issue on which the partners’ agreement is silent
GOVERNING STATE LAW
Waning Popularity of LPs
• LPs are not so popular now as they once were.
• Reason: new business entities (e.g., LLPs and LLCs) allow
protection from personal liability yet still allow their partners
with such protection to engage in management.
• In LPs, by contrast, the partners who have this limited liability
(limited partners) are barred from management.
FORMATION
Not so easy
to form . . .
FORMATION
Introduction
• An LP is a filing entity—i.e., for it have legal existence, a
limited partnership certificate must be prepared, signed, and
filed with the secretary of state (or equivalent official) of the
state of the partnership’s organization.
• In Texas, this form is called Certificate of Formation – Limited
Partnership, Form 207.
• Because the certificate is a public document, most general
partners comply narrowly with the state requirements and do
not include other matters because changes to these items
would necessitate later amendments to the certificate.
FORMATION
Texas Certificate of Formation - LP
Locating the official form
• Go to the official website of the Texas Secretary of State:
http://www.sos.state.tx.us/.
CLICK ON
“BUSINESS
FILINGS”
PULL-DOWN
MENU.
FORMATION
Locating the official form (continued)
CLICK ON
“FORMS, FILING,
OPTIONS & FEES”
MENU.
THEN CLICK ON
“BUSINESS/
NONPROFIT
FORMS”
FORMATION
ALTERNATIVE
WAY TO ACCESS
THE FORMS
FROM THE HOME
PAGE
FORMATION
• Browse the Business and Nonprofit Forms page.
CLICK ON
“CERTIFICATE
OF FORMATION
FOR A LIMITED
PARTNERSHIP”
(EITHER WORD
OR .PDF
VERSION)
FORMATION
• Certificate of Formation - LP
• Form 207 -
commentary and
instructions
FORMATION
• Certificate of Formation - LP
• Form 207
FORMATION
Completing the form (continued)
• LP name
Freezer Teasers, L.P.

FORMATION
• LP name (continued). The LP name . . .
• May not be the same as or deceptively similar to those of other
businesses [§ 5.053]
• Must include word(s) “Limited” or “Limited Partnership” or an abbreviation
of one of the two [§ 5.055(a)]
• In some states, may not include the limited partner’s name, unless:
• That name is also that of a general partner; or
• The business operated under that name before the limited partner’s
admission
FORMATION
• Registered agent and registered office (continued)
√
Jimmy D. Callender
2100 Bloomdale Road McKinney 75071

FORMATION
• Registered agent and registered office (continued)
• Purpose of registered agent: to serve as agent for service of
process—i.e., the person or entity that receives service of process
(litigation summonses and complaints) on behalf of a business
entity—in the state. [§ 5.201]
• A person who wishes to file suit against the LP will have the
summons and complaint on this registered agent.
• In many states, registered agent information is available online.
• Texas’ information can be found at the Texas Secretary of State’s online
service, SOSDirect, at
http://www.sos.state.tx.us/corp/sosda/index.shtml.
FORMATION
• Names and addresses of general partners
Michelina Swanson
2800 E. Spring Creek Pkwy Plano TX USA 75074

FORMATION
• Names and addresses of general partners (continued)
FORMATION
• Names and addresses of general partners (continued)
• Purpose: to enable potential limited partners, since they do not
participate in the control of the business, to perform their due
diligence—i.e., investigate the background of the general
partner(s) before joining the LP as a limited partner.
FORMATION
• Principal office
2100 Bloomdale Road McKinney TX 75071
N/A
FORMATION
• Effective date of filing
√
FORMATION
• Dissolution date (not required in Texas)
• Purpose: to provide notice to limited partners so that they will know
when final distributions may be made
FORMATION
• Execution (signature): all general partners must sign the
certificate.
• In Texas, the signatures need not be notarized.
6-8-15
Michelina Swanson
FORMATION
Filing the form
• Most states, like Texas, provide the required certificate
templates in downloadable form on the websites of their
secretaries of state.
• In Texas, for the latest information about . . .
• Filing method options, go to
http://www.sos.state.tx.us/corp/options.shtml.
• Mail
• Fax
• Online through the Texas Secretary of State’s online business service
called SOSDirect.
• Filing fee, go to
https://direct.sos.state.tx.us/help/help-corp.asp?pg=fee.
FORMATION
Filing the form (continued)
• Filing in Texas via SOSDirect:
CLICK ON LINK
FOR
SOSDIRECT.
FORMATION
• Filing in Texas via SOSDirect (continued)
• SOSDirect is also accessible on the Secretary of State home page.
FORMATION
• Filing in Texas via SOSDirect (continued) CLICK ON
“SOSDIRECT”
• SOSDirect home page TO ENTER.
FORMATION
• SOSDirect login page
FORMATION
• SOSDirect payment information page. Enter payment information.
FORMATION
• SOSDirect main menu
CLICK ON “BUSINESS ORGANIZATIONS.”

FORMATION
• SOSDirect business organizations menu
CLICK DOWN ARROW
FOR PULL-DOWN MENU.
CHANGE SELECTION TO
“DOMESTIC LIMITED
FIND SECTION CALLED PARTNERSHIP.”
“WEB FILINGS.”
THEN CLICK ON “FILE
DOCUMENT.”
FORMATION
• SOSDirect business organizations filing menu
CLICK ON DOWN ARROW,

SELECT “CERTIFICATE
OF FORMATION,” AND
CLICK “CONTINUE.”
FORMATION
• SOSDirect LP name availability search menu
TYPE IN DESIRED NAME

OF LP, THEN CLICK ON
“NAME AVAILABILITY
SEARCH.”
FORMATION
• SOSDirect LP name availability search results – Page 1 of 7
• Review entire list of names to see if your proposed LP name is the
same or would cause confusion with another filing entity’s name.
WHEN FINISHED REVIEWING ENTIRE LIST, CLICK ON “RETURN TO FILING.”

FORMATION
• SOSDirect LP principal office address field
• Follow remaining online instructions for generating the certificate.
FORMATION
Amending the Certificate of Formation
• The LP must file an amended certificate no later than 30 days
after any of the following occurs:
• Admission of a new general partner;
• Withdrawal of a general partner;
• Change of the LP’s name; or
• Change of the LP’s registered address or registered agent.
• A general partner must also amend the certificate reasonably
promptly if a general partner becomes aware of either of the
following:
• The certificate contains a statement that was false when made; or
• A matter set forth in the original certificate has changed, making the
certificate materially false.
[§ 153.051]
FORMATION
• Finding the form
• Find the link for Form 424, Certificate of Amendment
CLICK ON “CERTIFICATE OF AMENDMENT

(EITHER WORD OR .PDR VERSION)
FORMATION
• Form 424 – commentary and instructions
FORMATION
• Form 424 – commentary and instructions (continued)
FORMATION
• Form 424 – form
√
15-1000-00
06/08/2015
FORMATION
• Form 424 – form (continued)
√
Marie G. Stouffer
2100 Bloomdale Road McKinney 75071

FORMATION
FORMATION
√
FORMATION
11/18/2015
Michelina Swanson
Michelina Swanson
DRAFTING THE LIMITED
PARTNERSHIP
AGREEMENT
LP AGREEMENT
Overview
• Agreement need not be in writing, but writing is preferable.
• LP agreements are very similar to general partnership
agreements.
• Where agreement is silent, RULPA (except in Louisiana) will fill
in the missing terms.
• Special concerns for LP agreements:
• Profits and losses
• Rights and duties of general partner(s)
• Admission of new general and limited partners
• Withdrawal of limited partners
LP AGREEMENT
Profits and Losses
• LP agreements usually provide that profits and losses will be
shared in proportion to the partners’ respective contributions to
the LP.
6. Profits and Losses. Except as otherwise provided, profits and losses will
generally be allocated to the Partners pro rata to their partnership interests at the
time the allocation is made.
• If the agreement is silent on this issue, then such proportional

sharing is the default position under RULPA. [§ 153.206(a)]
• Contrast general partnership statute, RUPA, whose default position
is that partners share profits and losses equally.
LP AGREEMENT
Rights and Duties of General Partner(s)
• LP agreement should describe general partner’s rights/duties
to notify limited partners of his or her management obligations.
8. Management. The General Partner has the sole right and the duty to manage
and control the Limited Partnership, except as specifically limited by the other
provisions of this Agreement and the Texas Limited Partnership Law.
a. General Management Rights & Duties. Subject to the other provisions of this
Agreement, the General Partner shall have the right to, and shall be fully
responsible for, the management and control of the business of the Limited
Partnership. The General Partner shall make all decisions affecting the
business of the Partnership, except to the extent that this Agreement or
nonwaivable provisions of the Texas Limited Partnership Law require the
consent or approval of some or all other Partners. The General Partner shall
have all rights, powers, and authority generally conferred by the Texas
Limited Partnership Law or as otherwise provided by law or necessary,
advisable, or consistent with accomplishing the purposes of the Partnership.
LP AGREEMENT
b. Specific Powers. Without limiting the other provisions of the preceding

Section, the GP shall have the power:
(1) to cause the Partnership to enter into other partnerships as a general or
limited partner and to exercise the authority and to perform the duties
required of the Partnership as a partner of any other partnership;
(2) to acquire, hold and dispose of property or any interest in it;
(3) to protect and preserve the title to and the interest of the Partnership in
all of its property and assets, real, personal and mixed;
(4) to borrow money on behalf of the Partnership and to encumber the
Partnership assets or place title in the name of a nominee for purposes of
obtaining financing;
(5) to employ from time to time, at the expense of the Partnership,
consultants, accountants and attorneys;
***
LP AGREEMENT
***
(6) to pay all expenses incurred in the operation of the Partnership and all
taxes, assessments, rents and other impositions applicable to the
Partnership or any part thereof;
(7) to sign deeds, notes, contracts and other instruments in the name and on
behalf of the Partnership;
(8) to make all filings with governmental authorities, including tax returns;
and
(9) to assume any and all overall duties imposed on a general partner by the
Texas LP Law.
LP AGREEMENT
Admission of New General and Limited Partners
• LP agreement should specify the vote necessary to admit new
general or limited partners.
• In Texas, if the agreement is silent on this issue, then written
consent of all partners is required. [§§ 153.101(b)(2)(new
limited partners); 153.151(a)(2)(new general partners)]
LP AGREEMENT
Withdrawal of Limited Partners
• LP agreement should specify the circumstances, if any, under
which a limited partner may properly withdraw from the LP.
[§ 153.110]
9. Partner Rights & Restrictions.

a. Limited Partners May Not Withdraw. No Limited Partner has the power
or right to withdraw from the Limited Partnership before the Limited
Partnership is wound up and liquidated.
or
9. Partner Rights & Restrictions.
a. Limited Partner Withdrawal. Any Limited Partner has the power
or right to withdraw from the Limited Partnership at any time and cease
to be a Limited Partner upon giving six (6) months’ notice to the
General Partners.
LP AGREEMENT
Withdrawal of Limited Partners
• Upon withdrawal, a limited partner is entitled to receive, not
later than a reasonable time after withdrawal, the fair value of
his or her interest in the LP as of the date of withdrawal.
[§ 153.111]
OPERATION
Duties and Rights of Partners

OPERATION
General partner = partner in a LP who is fully responsible
for managing the business and has unlimited personal
liability
• Every LP must have at least 1 general partner who is fully
responsible for controlling the business.
• Duties:
• Fiduciary duty to limited partners and to the LP
• Management duties, which are usually set forth in LP agreement;
otherwise, all general partners share management responsibilities
equally.
• General partner is agent of LP who can bind LP for obligations.
OPERATION
General partner (continued)
• All general partners have unlimited joint and several
personal liability for LP’s debts and obligations.
• All partners in a general partnership are also called
“general” partners.
OPERATION
Limited (silent) partner = partner in a LP who is a passive
investor, who does not participate in controlling the
business, and whose liability for partnership obligations is
therefore limited to the amount he or she invested in the
business
• Partnership interests of a limited partner are generally readily
transferable. [§ 153.251]
OPERATION
Limited (silent) partner (continued)
• Limited partner can lose his or her limited liability by
participating in the “control” of the business. [§ 153.102(a)]
• Reason: controlling the business may give 3rd parties the
impression that he or she is a general partner with unlimited
personal liability.
• In that event, the limited partner is personally liable to those
persons who transacted business with the LP reasonably believing
the limited partner was a general partner [§ 153.102(b)]
• See also Hommel v. Micco, 602 N.E.2d 1259 (Ohio App.
1991)(summarized in textbook).
• No bright-line test exists for what constitutes “control”; numerous
courts have attempted to define it.
OPERATION
• Losing limited liability (continued)
• “Safe harbor” list – what commonly does not constitute participating
in the control of the business:
• Being a contractor, agent, or employee of the LP
• Consulting with and advising a general partner regarding the business
• Requesting, attending, or participating in a partners’ meeting
• Proposing one or more of the following:
• Dissolution and winding up of the business
• Sale, lease, or transfer of all or substantially all of the LP’s assets
• Admission or removal of a general or limited partner
• Amendment to the partnership certificate or agreement
• This list is not exclusive. Texas’s safe harbor list enumerates many
additional activities. [§§ 153.103-.104]
OPERATION
• In some states, the limited partner’s name cannot appear in the
name of the LP.
• Reason: it otherwise may give 3rd parties the impression that he or she is a
general partner with unlimited personal liability.
• Exceptions to this rule:
• When the limited partner’s name is also that of a general partner
• When the business operated under that name before the limited partner’s
admission.
Shhh
LIMITED PARTNER,
AS TO THIRD PARTIES:
TRANSFERABILITY OF
LP INTEREST
TRANSFERABILITY OF INTEREST
• A limited or general partner may transfer or assign her
partnership interest (rights to profits and distributions) in
whole or part without having to secure permission from any
other partner.
• But the transfer or assignment does not automatically entitle
the transferee to become a partner.
• The transferee/assignee will become a limited partner (with the
attendant partnership rights) only if either:
• Transferor/assignor expressly included those partnership rights in
accordance with the terms of the LP agreement; or
• In the absence of an LP agreement, all partners consent.
• Unless the LP agreement provides otherwise:
• A limited or general partner who assigns all of her partnership
interest will, upon a vote of the majority-in-interest of the other
partners, cease to be a partner. [§ 153.252(b)].
• If a general partner assigns all of her partnership interest, her
action is an event of withdrawal—i.e., an action that usually
requires winding up of the LP’s business.
• However, the LP can cancel the event of withdrawal if:
• There remains at least 1 general partner, and the agreement allows
continuation of the business; or
• Within a year after withdrawal, all remaining partners agree in writing to
continue the business and, to the extent desired or if no general partner
remains, agree to appoint a general partner.
[§§ 11.058(b), 153.501(b)]
• Sample LP agreement provision allowing a general partner,
upon majority vote, to assign part or all of her interest:
10. Transfers.
a. Transfer of General Partner’s Interest. By a majority vote, a General
Partner may voluntarily assign all or part of its General Partner interest.
DISSOLUTION
2 types of LP dissolution:
Judicial dissolution (with court involvement)
Nonjudicial dissolution (without court involvement)
DISSOLUTION
Judicial Dissolution
Any partner or his or her legal representative or transferee
can file suit and, for cause (reason) shown, obtain a judicial
decree winding up, dissolving, or terminating the LP. [§§
11.051(5); 153.502(b)]
DISSOLUTION
Nonjudicial Dissolution: 5 Triggers
• #1: When all partners voluntarily consent to dissolution in
writing [§ 11.058(a)] . . .
UNLESS . . .
• Thereafter, but prior to filing a certificate of termination with
secretary of state, all remaining partners (or other group or
percentage of them specified in the agreement) agree in writing to
revoke the voluntary decision to wind up and continue the business
of the limited partnership [§ 153.501(d)]:
DISSOLUTION
• #2: When term (if any) specified in the certificate of formation
expires [§ 11.051(1)]; or
• #3: When an event specified in LP agreement requiring
dissolution occurs [§ 11.051(3)] . . .
UNLESS . . .
• LP agreement provides otherwise; or
• Within 90 days of the event, all remaining partners (or other group
or percentage of them specified in LP agreement) agree in writing
to continue the business
[§ 153.501(a)]
DISSOLUTION
• #4: When a general partner commits an event of withdrawal [§
11.058(b)] . . .
UNLESS either:
• At least 1 general partner remains and:
• LP agreement permits remaining general partner(s) to continue LP
business; and
• Remaining general partner(s) in fact continue LP business;
or
• Within 1 year of the event of withdrawal, all remaining partners (or
other group or percentage of them specified in the agreement) . . .
• Agree in writing to continue the LP business; and
• To the extent they desire, or if there are no remaining general partners,
agree to appoint a new general partner(s)
[§ 153.501(b)]
DISSOLUTION
• #5: When there are no limited partners in the partnership
[§ 11.058(c)] . . .
UNLESS, no later than 1 year after this event occurs, either:
• The legal representative/successor of last remaining limited
partner and all general partners agree to:
• Continue the LP business; and
• Admit legal representative/successor (or that person's nominee or
designee) to LP as a limited partner, effective as of date of the event
causing the last remaining limited partner to cease being so;
or
• LP admits a limited partner in manner provided by LP
agreement, effective as of date of event causing last remaining
limited partner to cease being so
[§ 153.501(e)]
DISSOLUTION
Nonjudicial Dissolution: Winding Up
• In Texas, the LP must wind up by accomplishing the following:
• Collect LP assets.
• Pay creditors.
• Make any outstanding distributions to partners and former partners.
• Return contributions to the partners.
• Distribute profits to the partners in accordance with the LP
agreement.
DISSOLUTION
Nonjudicial Dissolution: Filing Requirement
• In Texas, after winding up, an LP accomplishes dissolution by
filing a Certificate of Termination of a Domestic Entity (Form
651) with the Texas Secretary of State. [§ 11.101(a)]
• The LP must also withdraw registration in any other states in
which it was registered to do business.
DISSOLUTION
• Finding the form on Texas Secretary of State website
SCROLL
DOWN.
DISSOLUTION
• Finding the form on Texas Secretary of State website (cont’d)
SCROLL
DOWN.
CLICK ON “CERTIFICATE OF TERMINATION

OF A DOMESTIC ENTITY”
(EITHER WORD OR .PDF VERSION)
DISSOLUTION
• Form 306 – commentary and instructions (beginning)
DISSOLUTION

limited partnership
06/08/2015
15-1000-00
Michelina Swanson
2800 E. Spring Creek Pkwy Plano TX USA 75074

DISSOLUTION
√
DISSOLUTION
√
THIS CERTIFICATE
IS AVAILABLE ON
THE TEXAS
COMPTROLLER’S
WEBSITE.
June 16, 2015 Freezer Teasers, L.P.
Michelina Swanson
Michelina Swanson
MANAGING
PERSONAL LIABILITY
PERSONAL LIABILITY
• To avoid the personal liability of a general partner, LPs often
have a corporation serve as the general partner.
• In this way, the corporation as general partner manages the
business through its directors and officers.
• Under corporate law, individual owners of corporations
(shareholders) have no personal liability.
• Therefore, creditors of the LP can reach only the assets in
(1) the LP’s accounts; and (2) the corporate general partner’s
accounts. No individuals will have personal liability.
TAXATION
TAXATION
Federal Taxation
• Same as taxation of general partnerships (see Chapter 3)
State Taxation
• Franchise tax = fee or tax imposed by a state for the privilege
of conducting business in the state
FOR MORE
INFORMATION, GO TO
TEXAS COMPTROLLER’S
WEBSITE, CLICK ON
“TEXAS TAXES” PULL-
DOWN MENU, THEN
CLICK ON “FRANCHISE
TAX.”
FOREIGN LIMITED
PARTNERSHIPS
FOREIGN LPS
Foreign Limited Partnerships
• When an LP is formed in one state but does business in
another state, it is known as a . . .
• Domestic limited partnership in the state of formation; and
• Foreign limited partnership in any the other state.
• When doing business in a state other than the state of
formation, the LP must file the appropriate application or
certificate in that other state.
• Doing business = engaging in activities enumerated by a state
that require the LP to qualify before entering the state to transact
business
• A foreign LP that fails to file the appropriate documents will be
precluded from maintaining any lawsuit in that other state until
the defect or omission is cured.
FOREIGN LPS
• To transact business in Texas legally, an out-of-state LP must
file an Application for Registration of a Foreign Limited
Partnership (Form 306) with the Texas Secretary of State.
SCROLL
DOWN.
FOREIGN LPS
• Application for Registration of a Foreign Limited Partnership in
Texas (continued)
• Link to Form 306
CLICK ON “LIMITED PARTNERSHIP

APPLICATION FOR REGISTRATION”
(EITHER WORD OR .PDF VERSION)
FOREIGN LPS
Texas (continued)
• Form 306 – commentary and instructions (beginning)
FOREIGN LPS
Texas (continued)
• Form 306 – form (beginning)
REGISTRATION OF AN LP
AS AN LLP
L
L P
^
REGISTRATION OF LP AS LLP
• Texas allows LPs to register also as limited liability partnerships
(LLPs). [§ 153.351.] Distinction:
• LPs: general partner has unlimited personal liability.
• LLPs: no partner has unlimited personal liability.
• To do so, LP must file application with secretary of state. [§
152.802(a)]
• An LP that registers as an LLP must have in its name the
words “Limited Liability Partnership,” “Limited Liability Limited
Partnership,” or an abbreviation of one of the two.
REGISTRATION OF LP AS LLP
• Effect of valid registration as LLP: no partner will be personally
liable to any person for any obligation of the partnership
incurred while the partnership is an LLP. [§ 152.801(a)]. In
Texas, “obligation of the partnership” includes both:
• Negligence or wrongdoing of another partner; and
• Obligations of the LLP itself, including contracts [§ 152.801(c)].
• LP’s registration as LLP must be renewed annually, if desired.
[§ 152.802(g)]
ROLE OF PARALEGAL
ROLE OF PARALEGAL
A paralegal will commonly:
• Check name availability for the entity and any required signals
(e.g., “Limited,” “Limited Partnership,” or “L.P.”).
• Draft and file Certificate of Formation – Limited Partnership.
• Draft the LP agreement.
• File applications to do business in foreign jurisdictions (states
other than state of formation), if desired.
• Monitor changes in the LP, file amendments to Certificate of
Formation, or file Certificate of Termination – Domestic Entity, if
needed.

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Chapter 4

3 Activity Must be for-profit business (and legal)

Limited partnership agreement required—oral,

Freezer Teasers, L.P.

2100 Bloomdale Road McKinney 75071

2800 E. Spring Creek Pkwy Plano TX USA 75074

2100 Bloomdale Road McKinney TX 75071

CLICK ON “BUSINESS ORGANIZATIONS.”

CLICK ON DOWN ARROW,

TYPE IN DESIRED NAME

WHEN FINISHED REVIEWING ENTIRE LIST, CLICK ON “RETURN TO FILING.”

CLICK ON “CERTIFICATE OF AMENDMENT

Freezer Teasers, L.P.

2100 Bloomdale Road McKinney 75071

• If the agreement is silent on this issue, then such proportional

b. Specific Powers. Without limiting the other provisions of the preceding

9. Partner Rights & Restrictions.

Duties and Rights of Partners

CLICK ON “CERTIFICATE OF TERMINATION

Freezer Teasers, L.P.

2800 E. Spring Creek Pkwy Plano TX USA 75074

June 16, 2015 Freezer Teasers, L.P.

CLICK ON “LIMITED PARTNERSHIP

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