Limited and General Partners

LIMITED PARTNERS

§ 153.101. ADMISSION OF LIMITED PARTNERS.

(a) In connection with the formation of a limited partnership, a person acquiring a limited partnership interest becomes a limited partner on the later of:

(1) the date on which the limited partnership is formed; or

(2) the date stated in the records of the limited partnership as the date on which the person becomes a limited partner or, if that date is not stated in those records, the date on which the person's admission is first reflected in the records of the limited partnership.

(b) After a limited partnership is formed, a person who acquires a partnership interest directly from the limited partnership becomes a new limited partner on:

(1) compliance with the provisions of the partnership agreement governing admission of new limited partners; or

(2) if the partnership agreement does not contain relevant admission provisions, the written consent of all partners.

(c) After formation of a limited partnership, an assignee of a partnership interest becomes a new limited partner as provided by § 153.253(a).

(d) A person may be a limited partner unless the person lacks capacity apart from this chapter and the other limited partnership provisions.

§ 153.102. LIABILITY TO THIRD PARTIES.

(a) A limited partner is not liable for the obligations of a limited partnership unless:

(1) the limited partner is also a general partner; or

(2) in addition to the exercise of the limited partner's rights and powers as a limited partner, the limited partner participates in the control of the business.

(b) If the limited partner participates in the control of the business, the limited partner is liable only to a person who transacts business with the limited partnership reasonably believing, based on the limited partner's conduct, that the limited partner is a general partner.

§ 153.103. ACTIONS NOT CONSTITUTING PARTICIPATION IN BUSINESS FOR LIABILITY PURPOSES.

For purposes of this § and §§ 153.102, 153.104, and 153.105, a limited partner does not participate in the control of the business because the limited partner has or has acted in one or more of the following capacities or possesses or exercises one or more of the following powers:

(1) acting as:

(A) a contractor for or an officer or other agent or employee of the limited partnership;

(B) a contractor for or an agent or employee of a general partner;

(C) an officer, director, or stockholder of a corporate general partner;

(D) a partner of a partnership that is a general partner of the limited partnership; or

(E) a member or manager of a limited liability company that is a general partner of the limited partnership;

(2) acting in a capacity similar to that described in Subdivision (1) with any other person that is a general partner of the limited partnership;

(3) consulting with or advising a general partner on any matter, including the business of the limited partnership;

(4) acting as surety, guarantor, or endorser for the limited partnership, guaranteeing or assuming one or more specific obligations of the limited partnership, or providing collateral for borrowings of the limited partnership;

(5) calling, requesting, attending, or participating in a meeting of the partners or the limited partners;

(6) winding up the business of a limited partnership under Chapter 11 and Subchapter K of this chapter;

(7) taking an action required or permitted by law to bring, pursue, settle, or otherwise terminate a derivative action in the right of the limited partnership;

(8) serving on a committee of the limited partnership or the limited partners; or

(9) proposing, approving, or disapproving, by vote or otherwise, one or more of the following matters:

(A) the winding up or termination of the limited partnership;

(B) an election to reconstitute the limited partnership or continue the business of the limited partnership;

(C) the sale, exchange, lease, mortgage, assignment, pledge, or other transfer of, or granting of a security interest in, an asset of the limited partnership;

(D) the incurring, renewal, refinancing, or payment or other discharge of indebtedness by the limited partnership;

(E) a change in the nature of the business of the limited partnership;

(F) the admission, removal, or retention of a general partner;

(G) the admission, removal, or retention of a limited partner;

(H) a transaction or other matter involving an actual or potential conflict of interest;

(I) an amendment to the partnership agreement or certificate of formation;

(J) if the limited partnership is qualified as an investment company under the federal Investment Company Act of 1940 (15 U.S.C. § 80a-1 et seq.), as amended, any matter required by that Act or the rules and regulations of the Securities and Exchange Commission under that Act, to be approved by the holders of beneficial interests in an investment company, including:

(i) electing directors or trustees of the investment company;

(ii) approving or terminating an investment advisory or underwriting contract;

(iii) approving an auditor; and

(iv) acting on another matter that that Act requires to be approved by the holders of beneficial interests in the investment company;

(K) indemnification of a general partner under Chapter 8 or otherwise;

(L) any other matter stated in the partnership agreement;

(M) the exercising of a right or power granted or permitted to limited partners under this code and not specifically enumerated in this section; or

(N) the merger, conversion, or interest exchange with respect to a limited partnership.

§ 153.104. ENUMERATION OF ACTIONS NOT EXCLUSIVE.

The enumeration in § 153.103 does not mean that a limited partner who has acted or acts in another capacity or possesses or exercises another power constitutes participation by that limited partner in the control of the business of the limited partnership.

§ 153.105. CREATION OF RIGHTS.

Sections 153.103 and 153.104 do not create rights of limited partners. Rights of limited partners may be created only by:

(1) the certificate of formation;

(2) the partnership agreement;

(3) other §§ of this chapter; or

(4) the other limited partnership provisions.

§ 153.106. ERRONEOUS BELIEF OF CONTRIBUTOR BEING LIMITED PARTNER.

Except as provided by § 153.109, a person who erroneously but in good faith believes that the person has made a contribution to and has become a limited partner in a limited partnership is not liable as a general partner or otherwise obligated because of making or attempting to make the contribution, receiving distributions from the partnership, or exercising the rights of a limited partner if, within a reasonable time after ascertaining the mistake, the person:

(1) causes an appropriate certificate of formation or certificate of amendment to be signed and filed;

(2) files or causes to be filed with the secretary of state a written statement in accordance with § 153.107; or

(3) withdraws from participation in future profits of the enterprise by executing and filing with the secretary of state a certificate declaring the person's withdrawal under this section.

§ 153.107. STATEMENT REQUIRED FOR LIABILITY PROTECTION.

(a) A written statement filed under § 153.106(2) must be entitled "Filing under § 153.106(2), Business Organizations Code," and contain:

(1) the name of the partnership;

(2) the name and mailing address of the person signing the written statement; and

(3) a statement that:

(A) the person signing the written statement acquired a limited partnership interest in the partnership;

(B) the person signing the written statement has made an effort to cause a general partner of the partnership to file an accurate certificate of formation required by the code and the general partner has failed or refused to file the certificate; and

(C) the statement is being filed under § 153.106(2) and the person signing the written statement is claiming status as a limited partner of the partnership named in the document.

(b) The statement is effective for 180 days.

(c) A statement filed under § 153.106(2) may be signed by more than one person claiming limited partnership status under this § and §§ 153.106, 153.108, and 153.109.

§ 153.108. REQUIREMENTS FOR LIABILITY PROTECTION FOLLOWING EXPIRATION OF STATEMENT.

(a) If a certificate described by § 153.106(1) has not been filed before the expiration of the 180-day period described by § 153.107(b), the person filing the statement has no further protection from liability under § 153.106(2) unless the person complies with this section. To be protected under § 153.106 the person must, not later than the 10th day after the date of expiration of the 180-day period:

(1) withdraw under § 153.106(3); or

(2) bring an action under § 153.554 to compel the execution and filing of a certificate of formation or amendment.

(b) If an action is brought within the applicable period and is diligently prosecuted to conclusion, the person bringing the action continues to be protected from liability under § 153.106(2) until the action is finally decided adversely to that person.

(c) This § and §§ 153.106, 153.107, and 153.109 do not protect a person from liability that arises under §§ 153.102-153.105.

§ 153.109. LIABILITY OF ERRONEOUS CONTRIBUTOR.

Regardless of whether §§ 153.106, 153.107, and 153.108 apply, a person who makes a contribution in the circumstances described by § 153.106 is liable as a general partner to a third party who transacts business with the partnership before an action taken under § 153.106 if:

(1) the contributor has knowledge or notice that no certificate has been filed or that the certificate inaccurately referred to the contributor as a general partner; and

(2) the third party reasonably believed, based on the contributor's conduct, that the contributor was a general partner at the time of the transaction and extended credit to the partnership in reasonable reliance on the credit of the contributor.

§ 153.110. WITHDRAWAL OF LIMITED PARTNER.

A limited partner may withdraw from a limited partnership only at the time or on the occurrence of an event specified in a written partnership agreement. The withdrawal of the partner must be made in accordance with that agreement.

§ 153.111. DISTRIBUTION ON WITHDRAWAL.

Except as otherwise provided by § 153.210 or the partnership agreement, on withdrawal a withdrawing limited partner is entitled to receive, not later than a reasonable time after withdrawal, the fair value of that limited partner's interest in the limited partnership as of the date of withdrawal.

§ 153.112. RECEIPT OF WRONGFUL DISTRIBUTION.

A limited partner who receives a distribution that is not permitted under § 153.210 is not required to return the distribution unless the limited partner knew that the distribution violated the prohibition of § 153.210. This § does not affect an obligation of the limited partner under the partnership agreement or other applicable law to return the distribution.

§ 153.113. POWERS OF ESTATE OF LIMITED PARTNER WHO IS DECEASED OR INCAPACITATED.

If a limited partner who is an individual dies or a court adjudges the limited partner to be incapacitated in managing the limited partner's person or property, the limited partner's executor, administrator, guardian, conservator, or other legal representative may exercise all of the limited partner's rights and powers to settle the limited partner's estate or administer the limited partner's property, including the power of an assignee to become a limited partner under the partnership agreement.

GENERAL PARTNERS

§ 153.151. ADMISSION OF GENERAL PARTNERS.

(a) After a limited partnership is formed, additional general partners may be admitted:

(1) in the manner provided by a written partnership agreement; or

(2) if a written partnership agreement does not provide for the admission of additional general partners, with the written consent of all partners.

(b) A person may be a general partner unless the person lacks capacity apart from this chapter.

(c) A written partnership agreement may provide that a person may be admitted as a general partner in a limited partnership, including as a sole general partner, and may acquire a partnership interest in the limited partnership without:

(1) making a contribution to the limited partnership; or

(2) assuming an obligation to make a contribution to the limited partnership.

(d) A written partnership agreement may provide that a person may be admitted as a general partner in a limited partnership, including as the sole general partner, without acquiring a partnership interest in the limited partnership.

(e) This § is not a limitation of or does not otherwise affect § 153.152.

§ 153.152. GENERAL POWERS AND LIABILITIES OF GENERAL PARTNER.

(a) Except as provided by this chapter, the other limited partnership provisions, or a partnership agreement, a general partner of a limited partnership:

(1) has the rights and powers and is subject to the restrictions of a partner in a partnership without limited partners; and

(2) has the liabilities of a partner in a partnership without limited partners to the partnership and to the other partners.

(b) Except as provided by this chapter or the other limited partnership provisions, a general partner of a limited partnership has the liabilities of a partner in a partnership without limited partners to a person other than the partnership and the other partners.

§ 153.153. POWERS AND LIABILITIES OF PERSON WHO IS BOTH GENERAL PARTNER AND LIMITED PARTNER.

A person who is both a general partner and a limited partner:

(1) has the rights and powers and is subject to the restrictions and liabilities of a general partner; and

(2) except as otherwise provided by the partnership agreement, this chapter, or the other limited partnership provisions, has the rights and powers and is subject to the restrictions and liabilities, if any, of a limited partner to the extent of the general partner's participation in the partnership as a limited partner.

§ 153.154. CONTRIBUTIONS BY AND DISTRIBUTIONS TO GENERAL PARTNER.

A general partner of a limited partnership may make a contribution to, be allocated profits and losses of, and receive a distribution from the limited partnership as a general partner, a limited partner, or both.

§ 153.155. WITHDRAWAL OF GENERAL PARTNER.

(a) A person ceases to be a general partner of a limited partnership on the occurrence of one or more of the following events of withdrawal:

(1) the general partner withdraws as a general partner from the limited partnership as provided by Subsection (b);

(2) the general partner ceases to be a general partner of the limited partnership as provided by § 153.252(b);

(3) the general partner is removed as a general partner in accordance with the partnership agreement;

(4) unless otherwise provided by a written partnership agreement, or with the written consent of all partners, the general partner:

(A) makes a general assignment for the benefit of creditors;

(B) files a voluntary bankruptcy petition;

(C) becomes the subject of an order for relief or is declared insolvent in a federal or state bankruptcy or insolvency proceeding;

(D) files a petition or answer seeking for the general partner a reorganization, arrangement, composition, readjustment, liquidation, winding up, termination, dissolution, or similar relief under law;

(E) files a pleading admitting or failing to contest the material allegations of a petition filed against the general partner in a proceeding of the type described by Paragraphs (A)-(D); or

(F) seeks, consents to, or acquiesces in the appointment of a trustee, receiver, or liquidator of the general partner or of all or a substantial part of the general partner's properties;

(5) unless otherwise provided by a written partnership agreement or with the written consent of all partners, the expiration of:

(A) 120 days after the date of the commencement of a proceeding against the general partner seeking reorganization, arrangement, composition, readjustment, liquidation, dissolution, or similar relief under law if the proceeding has not been previously dismissed;

(B) 90 days after the date of the appointment, without the general partner's consent, of a trustee, receiver, or liquidator of the general partner or of all or a substantial part of the general partner's properties if the appointment has not previously been vacated or stayed; or

(C) 90 days after the date of expiration of a stay, if the appointment has not previously been vacated;

(6) the death of a general partner;

(7) a court adjudicating a general partner who is an individual mentally incompetent to manage the general partner's person or property;

(8) unless otherwise provided by a written partnership agreement or with the written consent of all partners, the commencement of winding up activities intended to conclude in the termination of a trust that is a general partner, but not merely the substitution of a new trustee;

(9) unless otherwise provided by a written partnership agreement or with the written consent of all partners, the commencement of winding up activities of a separate partnership that is a general partner;

(10) unless otherwise provided by a written partnership agreement or with the written consent of all partners, the:

(A) filing of a certificate of termination or its equivalent for an entity, other than a nonfiling entity or a foreign nonfiling entity, that is a general partner; or

(B) termination or revocation of the certificate of formation or its equivalent of an entity, other than a nonfiling entity or a foreign nonfiling entity, that is a general partner and the expiration of 90 days after the date of notice to the entity of termination or revocation without a reinstatement of its certificate of formation or its equivalent; or

(11) the distribution by the fiduciary of an estate that is a general partner of the estate's entire interest in the limited partnership.

(b) A general partner may withdraw at any time from a limited partnership and cease to be a general partner under Subsection (a) by giving written notice to the other partners.

§ 153.156. NOTICE OF EVENT OF WITHDRAWAL.

A general partner who is subject to an event that with the passage of the specified period becomes an event of withdrawal under § 153.155(a)(4) or (5) shall notify the other partners of the event not later than the 30th day after the date on which the event occurred.

§ 153.157. WITHDRAWAL OF GENERAL PARTNER IN VIOLATION OF PARTNERSHIP AGREEMENT.

Unless otherwise provided by the partnership agreement, a withdrawal by a general partner of a partnership having a period of duration or for a particular undertaking before the expiration of that period or completion of that undertaking is a breach of the partnership agreement.

§ 153.158. EFFECT OF WITHDRAWAL.

(a) Unless otherwise provided by a written partnership agreement and subject to the liability created under § 153.162, if a general partner ceases to be a general partner under § 153.155, the remaining general partner or partners, or, if there are no remaining general partners, a majority-in-interest of the limited partners in a vote that excludes any limited partnership interest held by the withdrawing general partner, may:

(1) convert that general partner's partnership interest to that of a limited partner; or

(2) pay to the withdrawn general partner in cash, or secure by bond approved by a court of competent jurisdiction, the value of that partner's partnership interest minus the damages caused if the withdrawal constituted a breach of the partnership agreement.

(b) Until an action described by Subsection (a) is taken, the owner of the partnership interest of the withdrawn general partner has the status of an assignee under Subchapter F.

(c) If there are no remaining general partners following the withdrawal of a general partner, the partnership may be reconstituted.

§ 153.159. CONVERSION OF PARTNERSHIP INTEREST AFTER WITHDRAWAL.

If the partners convert the partnership interest under § 153.158(a)(1), the limited partnership interest may be reduced pro rata with all other partners to provide compensation, an interest in the partnership, or both, to a replacement general partner.

§ 153.160. EFFECT OF CONVERSION OF PARTNERSHIP INTEREST.

(a) After an amendment to the certificate of formation reflecting the general partner's withdrawal as a general partner is filed under § 153.051, the withdrawing general partner:

(1) may vote as a limited partner in all matters, to the same extent as the members of the class of limited partners having the least voting rights with respect to the matter on which the vote is taken; and

(2) may not vote on the admission and compensation of a general partner who replaces the withdrawing general partner.

(b) If the general partner's withdrawal violates the partnership agreement, the general partner does not have voting rights.

§ 153.161. LIABILITY OF GENERAL PARTNER FOR DEBT INCURRED AFTER EVENT OF WITHDRAWAL.

(a) Unless otherwise provided by a written partnership agreement and subject to the liability created under § 153.162, a general partner who ceases to be a general partner under § 153.155 is not personally liable in the partner's capacity as a general partner for partnership debt incurred after that partner ceases to be a general partner unless the applicable creditor at the time the debt was incurred reasonably believed that the partner remained a general partner.

(b) A creditor of the partnership has reason to believe that a partner remains a general partner if:

(1) the creditor had no knowledge or notice of the general partner's withdrawal and:

(A) was a creditor of the partnership at the time of the general partner's withdrawal; or

(B) had extended credit to the partnership within two years before the date of withdrawal; or

(2) the creditor had known that the partner was a general partner in the partnership before the general partner's withdrawal and had no knowledge or notice of the withdrawal and the general partner's withdrawal had not been advertised in a newspaper of general circulation in each place at which the partnership business was regularly conducted.

§ 153.162. LIABILITY FOR WRONGFUL WITHDRAWAL.

(a) If a general partner's withdrawal from a limited partnership violates the partnership agreement, the partnership may recover damages from the withdrawing general partner for breach of the partnership agreement, including the reasonable cost of obtaining replacement of the services the withdrawn partner was obligated to perform.

(b) In addition to pursuing any remedy available under applicable law, the partnership may effect the recovery of damages under Subsection (a) by offsetting those damages against the amount otherwise distributable to the withdrawing general partner, reducing the limited partner interest into which the withdrawing general partner's interest may be converted under § 153.158(a)(1), or both.

 

Contact Information

Mailing Address

Chowins Law Firm, PLLC
1011 Surrey Lane #200
Flower Mound, TX 75022

Telephone

(469) 630-2550

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