Top 5 Considerations for Limited Liability Partnerships in Dallas
When establishing a business in Dallas, a limited liability partnership is one of the entity types available3 min read
When establishing a business in Dallas, a limited liability partnership is one of the entity types available. A limited liability partnership combines the legal and tax benefits of a general partnership with the limited liability benefits of a corporation. However, a limited liability partnership is not a substitute for a corporation and may not be suitable for all business operations. Before executing agreements in Dallas that establish a limited liability partnership, there are five key considerations: formation, taxation, transferability of interests, termination, and ownership.
To form a limited liability partnership, a few steps must be taken. First, a partnership agreement must be drafted that outlines the specific duties, rights, and responsibilities of each partner. As with any legal agreement, this document should be reviewed by business lawyers familiar with limited liability partnerships in Dallas. The agreement should also include provisions that specifically outline the scope of the partners’ limited liability protection, allowing them to avoid personal liability for damages that are unrelated to the partnership.
Next, an application for registration must be filed with the State of Texas. If the application is approved, the partnership receives a limited liability partnership certificate—often referred to as a certificate of registration. With approval, comes the limited liability partnership designation.
When it comes to tax, limited liability partnerships in Texas—and many other states—are taxed as a general partnership or as if the partnership were “pass-through entities.” This means that income taxes are paid by the individual partners in the same way they are paid by general partners. A limited liability partnership does not pay taxes on its income. Instead, the income flows through to the partners, who pay taxes based on their individual tax bracket.
Transferability of Interests
When a partner leaves the limited liability partnership, or when new members are admitted, it is important to consider the transferability of the partnership interests. In Texas, partnership interests are freely transferable, meaning that the partner who is leaving or a new partner can transfer or assign the interest to another person or entity. Depending on the specific terms of the operating agreement, the other partners may or may not have the right to approve the transfer.
A limited liability partnership in Texas can be terminated in one of two ways: (1) voluntarily; or (2) involuntarily, by court order. In voluntary dissolution, the partners must agree to dissolve the partnership. Involuntary dissolution can occur due to the death or departure of a partner, or if a partner submits a petition to the court. In either situation, the partnership should pay taxes and other remaining debts prior to termination in order to ensure that each partner is released from personal liability for the partnership’s obligations.
When forming a limited liability partnership, it is important to consider the ownership structure of the business. The rights of owners in a limited liability partnership are created and defined in the partnership agreement. While the partnership agreement can provide protection from personal liability, it is important to note that a general partner in a limited liability partnership may be held responsible for the wrongful conduct of another partner.
The formation of a limited liability partnership requires careful consideration, particularly in the areas of formation, taxation, transferability of interests, termination, and ownership. An experienced limited liability lawyer in the Dallas area can help ensure that the formation process is handled correctly and that the limited liability partnership operates under the relevant state and local laws.