Texas Limited Partnership Agreement
A Texas limited partnership is designed to protect partners who do not take an active role in the management of the partnership from unlimited liability for debts of the partnership. A limited partnership must have at least one general partner and one limited liability partner. A limited partnership agreement must be carefully drafted and comprehensive in order to avoid unintended legal consequences.
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Formation
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The formation section should include a statement that the parties to the agreement are hereby forming a limited liability partnership. It should also include the name of the partnership and a description of the business of the partnership that is specific and at least one paragraph long. It should also include the partnership's registered address, and supply the names and addresses of all partners. Finally, the duration of the partnership should be specified. It is acceptable to state that the partnership will endure until the partners choose to dissolve it.
Capitalization
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The capitalization section should list the capital contributions of each partner. It should also set forth any required future additional contributions, the procedure necessary for contributing additional capital, the consequences for failure to make scheduled capital contributions and the procedure for return of the capital contributions of withdrawing partners.
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Distributions
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The section on distributions should detail how the partnership should make distributions to its partners. In particular, it should specify how profits and losses are to be allocated among the partners because Texas law does not require that these be allocated according to each partner's proportional capital contributions. In a Texas limited partnership, the general partners pay the limited partners a periodic return on their investment, which should be specified here.
Management
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In the management section, the rights and duties of the general partners should be stated with specificity, along with a statement of the liability of each partner (limited or unlimited). It should appoint a general partner to deal with tax matters. Finally, it should set standards for how accounts and records are to be maintained, and state who is responsible for maintaining records and preparing various reports.
Rights and Duties of Limited Partners
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This section on rights and duties of limited partners is particularly important because limited partners could lose their limited liability under Texas law if they participate in the daily management of the partnership. For this reason, it should be stated that the limited partners are entitled only to a specified return on their investment, have no management authority and may not bind the partnership (by signing contracts on its behalf, for example).
Dissolution
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This section should specify how the partnership is to be dissolved, and how the assets of the partnership should be liquidated. It should also state how assets are to be distributed. Under Texas law, the assets of a dissolved limited partnership must be distributed to creditors first and limited partners second, with the remainder going to the general partners.
Miscellaneous Provisions
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The remainder of the agreement should include general contractual housekeeping provisions and a place for each partner to sign. Housekeeping provisions should include governing law (Texas law), successors (whether heirs or assigns are entitled to the distributions of a deceased partner), and procedures for amending the agreement.
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