- Limited Liability: Yes, With Limitations (No Limitation For General Partner)
- Taxation: One Level (For Limited Partners)
- Ownership: Requires At Least One General Partner & One Limited Partner
- Typical Complexity / Cost: High
- Capital Structure: Flexible, Yet Potentially Complex
- Ability to Take Public: No
- Employee Compensation Methods: Complex, Somewhat Limited
The popularity of using Texas limited partnerships has declined since Texas implemented its revised franchise tax in 2008, closing a favorable loophole for limited partnerships. However, there are still some businesses and circumstances which favor limited partnerships, including partnerships organized to make certain types of investments. The Austin Business Advisor will address limited partnerships and these circumstances in more detail in coming posts.
A limited partnership is taxed in the same manner as an LLC which has not elected to be taxed otherwise. However, a limited partnership has a unique characteristic, requiring at least one general partner and at least one limited partner. While the limited partner(s) enjoy limited liability, its general partner(s) does not. Despite this requirement, general partners can obtain limited liability by simply organizing as corporations, which is typically the case in practice. This added complexity to the ownership structure of a limited partnership is the primary difference between a limited partnership and an LLC or LLP, and also one of the reasons limited partnerships have become less popular.