Key Takeaways

  • Texas recognizes several partnership structures, including general partnerships (GPs), limited partnerships (LPs), limited liability partnerships (LLPs), and limited liability limited partnerships (LLLPs), each with distinct liability and tax implications.
  • Forming a partnership in Texas requires choosing and registering a business name, filing the correct formation documents (if applicable), and securing tax IDs and licenses.
  • Written partnership agreements are highly recommended even when not legally required, as they clarify ownership, responsibilities, profit-sharing, and exit strategies.
  • Texas imposes franchise taxes on most limited partnerships and LLPs, while general partnerships typically avoid them.
  • Additional requirements may apply for foreign entities, regulated industries, and professional partnerships.

A partnership agreement Texas, which professionals may form, can be as simple as a general partnership or as complex as the various limited liability partnerships. The role that individuals want to have within the business will determine the type of partnership they will enter into.

Types of Texas Partnerships

  • General Partnerships (GP) - GPs stipulate that the general partner is solely liable for any debts of the partnership. Income from the partnership is accounted for by the partners in the same fashion as personal income. State franchise taxes are not applicable to this type of partnership.
  • Limited Partnership (LP) - General and limited partners are found in this partnership. Limited partners are only responsible for investments they personally have with the business. General partners accept full financial liability for the debts of the partnership. Both limited and general partners will claim their portion of revenue in the same way they do personal income. Franchise taxes are applicable to this type of partnership.
  • Limited Liability Partnership (LLP) - This type of partnership provides protection to all partners from business-related liabilities that they did not personally create. They continue to be liable for any debts established while they were in charge of the business. LLPs and GPs are taxed the same way, but LLPs are subject to more regulation because of their status of being a limited entity status. Franchise tax is applicable to LLPs.
  • Limited Liability Limited Partnership (LLLP) - This type of partnership allows capped business debt responsibility to be that of their total investment for limited partners. LLLPs also protect GPs from debts of the business that they were not responsible for. Franchise taxes are applicable to this type of partnership.

Key Considerations When Choosing a Partnership Type

When deciding between a GP, LP, LLP, or LLLP, partners should evaluate liability exposure, management preferences, and tax obligations. For instance, GPs offer simplicity but leave partners personally liable for debts, while LLPs shield partners from liabilities caused by other partners’ actions. LPs allow passive investors to limit risk, but general partners remain exposed. In addition, Texas requires LLPs and LLLPs to file annual renewal applications with the Secretary of State and maintain adequate liability insurance.

Partnership type also impacts taxation. While all partnerships are generally treated as pass-through entities for federal tax purposes, Texas imposes a franchise tax on most LPs, LLPs, and LLLPs, but not on GPs. Choosing the right structure should balance liability protection, tax efficiency, and business goals.

Forming a Texas Partnership

These five steps can assist you in forming a partnership in Texas.

  1. Name your business. While there is a benefit to creativity when selecting a name, you need to remember that your name will affect how your new business is perceived publicly. You should also include the entity type in the name.
  2. Registering your name. Confirm with the Secretary of State to verify the availability of your name. You can protect the name by registering it with the Secretary of State.
  3. Complete the paperwork required. Filing necessary paperwork along with the fee associated is usually required for partnerships in Texas. Businesses from outside the United States may have additional fees and requirements.
  • General Partnerships (GP) - Registering with the Secretary of State is not required for GPs other than the Assumed Business Name Registration. Having your partnership agreement in written form is highly recommended.
  • Limited Partnerships (LP) - A Certificate of Limited Partnership is required for LPs in the state of Texas.
  • Limited Liability Partnerships (LLP) - LLPs are required to file a Registration Application with the Secretary of State.
  • Limited Liability Limited Partnerships (LLLP) - LPs have the choice to increase their protection from liability with an LLLP registration. To do this, they need to file the Application for Registration with the Secretary of State.
  1. Obtain an EIN, licensure, and tax IDs. If hiring employees is in your future, you will need to obtain an IRS Employer Identification Number (EIN). While not required of businesses not hiring employees, it is strongly encouraged and useful for business credit cards and bank accounts. Specific licensure may be required for businesses such as electricians, plumbers, and other contractors. You should also check for any other applicable taxes.
  2. Organize day-to-day activities. You will receive a certified, stamped copy of your paperwork from the Secretary of State once approved. Once this is received, you are free to conduct business.
  • Open separate accounts in the business name to track fiscal liability.
  • Obtain a physical address where mail and legal notices can be sent to the business.
  • Ensure all partners have a copy of the partnership agreement outlining how the partnership will be handled. Situations such as addition of new partners, partners leaving, or ending the business should be addressed.

Having a comprehensive partnership agreement not only helps your new business run smoothly but protects all partners as well.

Essential Provisions in a Texas Partnership Agreement

Even though Texas law does not mandate a written partnership agreement for all structures, creating one is strongly advised. A thorough agreement should outline:

  • Capital Contributions – how much each partner invests and whether contributions are in cash, property, or services.
  • Profit and Loss Allocation – the percentage of earnings each partner receives.
  • Decision-Making Authority – which matters require unanimous approval versus majority consent.
  • Roles and Duties – whether all partners manage daily operations or only designated managing partners do.
  • Admitting or Removing Partners – procedures for adding new partners or handling voluntary withdrawals.
  • Dispute Resolution – methods such as mediation or arbitration to avoid costly litigation.
  • Exit Strategy – how assets are divided if the partnership dissolves.

By addressing these issues upfront, partners reduce misunderstandings and create a framework for long-term success.

Texas-Specific Filing and Compliance Requirements

While general partnerships can often be created informally, certain filings are required for other entities:

  • LPs must file a Certificate of Formation (Form 207) with the Secretary of State.
  • LLPs must file a Registration Application (Form 701), renewed annually, and meet insurance or financial responsibility requirements.
  • LLLPs must submit an amendment to their LP certificate to elect limited liability status for general partners.
  • Foreign partnerships doing business in Texas must register with the Secretary of State before transacting business.

Additionally, depending on industry, businesses may need professional or occupational licenses, zoning permits, or sales tax permits. Failure to comply can result in penalties or dissolution of the entity.

Taxation and Reporting for Texas Partnerships

Unlike corporations, partnerships in Texas are not taxed at the entity level for federal income tax. Profits and losses flow through to the partners’ personal tax returns. However, most partnerships (except certain GPs) are subject to the Texas franchise tax, which is based on annual revenue. Partnerships must also maintain accurate records for IRS reporting, including Form 1065 (U.S. Return of Partnership Income) and Schedule K-1s for each partner.

Texas also requires registered entities like LLPs to file periodic reports with the Secretary of State to remain in good standing. Proper recordkeeping ensures compliance and avoids penalties.

Frequently Asked Questions

  1. Do I need to file paperwork to form a general partnership in Texas?
    Not always. A GP can be formed by agreement between partners, but filing an Assumed Business Name with the county is recommended.
  2. Which Texas partnerships must pay franchise tax?
    Limited partnerships, LLPs, and LLLPs typically owe franchise tax, while most general partnerships are exempt.
  3. Is a written partnership agreement legally required in Texas?
    No, but it is strongly advised to prevent disputes and outline contributions, roles, and profit-sharing.
  4. How do foreign partnerships register to do business in Texas?
    Foreign entities must file a registration with the Texas Secretary of State before conducting business operations.
  5. Can professional practices form partnerships in Texas?
    Yes, but some professions (such as law or medicine) must form professional entities and comply with licensing regulations.

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