Forming a limited partnership in Texas may be one way to limit losses in your business while retaining financial benefits. Texas trust law explains that some people use limited partnerships as an estate-planning device to ensure the safety of their invested capital.
When considering such a business relationship, it is important to remember that limited partners are silent partners, so you will have no say in how the business runs on a daily basis.
Culpability for debts
In most business relationships, all partners are equally liable for debts the company incurs. This means that creditors can legally collect all debts owed from any partner. That partner can, in turn, sue their counterparts for reimbursement, but this can be an arduous and lengthy process.
In contrast, as a limited partner, you are only liable for money already invested in the business. If it fails, you would generally not be responsible for additional debts, but you and your family could reap the benefits if the company grows.
Trust relationship
Due to the Texas Omnibus Budget Reconciliation Act of 1993, this business relationship resembles a trust and is therefore legally a trust, with the general partner as a trustee and you and any heirs as beneficiaries. Similar to other types of trust, this relationship allows you to separate the business from your personal estate. You and your heirs will still have to claim any payments or profits made from the business, but you may be able to claim these profits as income at a lower tax rate.
Creating a limited partnership
In order to form a limited partnership, you will need at least one general partner to control the business. You and any general partners would then file a limited partnership certificate naming all partners and their status as limited or general. Failing to correctly file this paperwork could leave you culpable for debts, so it is important to be careful and intentional in the process.
