The Limited Partnership Agreement for a South Dakota LP

An LLC has an operating agreement. A limited partnership has a limited partnership agreement — the same idea, adapted to the LP's two-class structure. It is the private contract among the partners that governs how the partnership works internally. South Dakota does not require you to file it, and it never becomes public. But it is, in a real sense, the actual deal: the Certificate of Limited Partnership creates the entity, while the limited partnership agreement defines the relationship.

Why it outweighs the state filing

The certificate is a thin public document — the name, the office, the agent, the general partners. It says nothing about money, control, or what happens when things change. All of that lives in the limited partnership agreement. When partners disagree, when someone wants out, when profits need to be split, or when a general partner's authority is questioned, the agreement is what everyone looks to. A well-drafted agreement is the difference between a dispute resolved by reading a clause and a dispute resolved by litigation.

When it is required in practice

South Dakota's default statutory rules apply wherever your agreement is silent. So without an agreement, you have not avoided rules — you have simply accepted the state's defaults, which were written for the general case and rarely match a specific deal. For any LP with real money and multiple investors, a written agreement is not optional in any meaningful sense.

The first job of the agreement is to nail down who put in what and what they get for it.

What to specify

• Initial contributions. What each general and limited partner contributes — cash, property, services — and the agreed value of non-cash contributions.
• Ownership interests. Each partner's percentage interest in the partnership, distinguishing general partner interests from limited partner interests.
• Additional capital calls. Whether partners can be required to contribute more later, on what terms, and what happens to a partner who fails to meet a call — dilution, penalties, or loss of rights.
• Loans versus capital. Whether money a partner advances is a loan (repaid ahead of distributions) or additional capital. This distinction matters enormously at dissolution.

For investment LPs, this section is where the economics start. Limited partners are contributing capital and expect their contribution, and its priority, to be spelled out precisely. Vagueness here is the seed of future conflict.

How money flows out of the partnership is often the most negotiated part of the agreement — and the part the state's defaults are least likely to get right for your deal.

Allocation of profits and losses

Profits and losses do not have to be split in proportion to capital contributions, and in sophisticated LPs they frequently are not. The agreement sets the allocation — who bears losses, who shares gains, and in what ratio. It should also address how allocations interact with the partners' capital accounts for tax purposes, which is where a CPA earns their fee.

The distribution waterfall

Real LPs, especially in real estate and funds, use a "waterfall" — a defined order in which cash is distributed:

1. Return of a preferred return to limited partners on their invested capital
2. Return of capital contributions
3. A split of the remaining profit between limited partners and the general partner, often with the general partner's share (the "carry") increasing after certain thresholds

The agreement defines each tier precisely, so when cash comes in, everyone already knows where it goes. This is the machinery that makes an investment LP function, and it is worth the drafting effort to get exactly right.

The defining feature of an LP is the split between active and passive partners, and the agreement is where that split is drawn.

General partner authority

The general partner manages the partnership. The agreement should define the scope of that authority: what the general partner can do unilaterally (day-to-day operations, ordinary contracts) and what requires limited partner consent (selling the main asset, admitting new partners, amending the agreement, dissolving). It should also cover the general partner's compensation, any management fee, and standards of conduct.

Limited partner rights — and the line they cannot cross

Limited partners are investors, not managers, and their liability shield depends on staying that way. The agreement should spell out their rights — access to information and financial statements, voting on fundamental changes, and their economic entitlements — while being careful not to hand them so much operational control that they risk being recharacterized as general partners. This balance is precisely why an attorney should draft or review the agreement.

Liability of the general partner

The general partner bears personal liability for the partnership's obligations. Many LPs address this by making the general partner an LLC or corporation rather than an individual, so an entity absorbs the exposure. The agreement should reflect whatever structure you have chosen and be consistent with how the general partner is named on the certificate.

A partnership is a living arrangement, and the agreement has to plan for how it changes over time.

Transfers and new partners

• Transfer restrictions. Whether and how a limited partner can sell or assign their interest — rights of first refusal, general partner approval, restrictions to protect the partnership.
• Admission of new partners. The process and approvals required to bring in new limited or general partners.

Withdrawal and removal

What happens when a partner wants out or must be removed. For a general partner, this is especially important — the departure or incapacity of the sole general partner can threaten the partnership's continuity, so the agreement should provide for a successor.

Dissolution

The events that trigger winding up, how assets are distributed at the end (the closing side of the waterfall), and the general partner's duties in closing the partnership. Planning dissolution in advance, while everyone is aligned, is far easier than negotiating it during a breakup.

How Mainstay Filing fits

We prepare and file the Certificate of Limited Partnership that creates your entity, and we can serve as your South Dakota registered agent. The limited partnership agreement itself is a legal document that should be drafted or reviewed by an attorney who understands your deal — we do not draft it or give legal advice. What we do is make sure the public, state-facing side is filed correctly so your private agreement has a properly formed entity to govern.