The Limited Partnership Agreement for a Tennessee LP

For a limited partnership, the equivalent of an LLC's operating agreement is the limited partnership agreement. It's the internal, private contract among the partners that sets the rules of the partnership — economic and operational. You do not file it with the Tennessee Secretary of State, and it never becomes public. The only thing the state sees is the short Certificate of Limited Partnership; everything about how the partnership actually works lives in this agreement.

Tennessee's Revised Uniform Limited Partnership Act, at Title 61 of the Tennessee Code, supplies default rules for partnerships that don't address a given issue. The limited partnership agreement's job is to override those defaults where they don't fit your deal. Without an agreement, the statute governs by default — and the statute wasn't written with your particular capital structure, profit split, or partner expectations in mind.

Why it matters more in an LP than almost anywhere

An LP has two classes of owners with fundamentally different roles and risk profiles. The agreement is what defines and protects that split — the general partners' authority and unlimited liability on one side, the limited partners' capital and passive protection on the other. Get this document right and the partnership runs on clear rules. Get it wrong, or skip it, and disputes fill the vacuum.

The agreement should spell out exactly what each partner puts in and what, if anything, they may be called on to contribute later.

Initial contributions

Record what each general and limited partner contributes at formation — cash, property, services, or a promise to contribute. Assign a value to non-cash contributions so capital accounts are clear from day one. Limited partners typically contribute the bulk of the capital; general partners often contribute a smaller amount plus their management.

Future contributions and capital calls

Decide whether partners can be required to contribute more later, and if so, how a capital call works — how much notice, on what terms, and what happens if a partner doesn't meet the call. Undefined capital-call mechanics are a frequent source of partnership conflict. Address dilution, default remedies, and whether non-contributing partners lose rights, so everyone knows the stakes before money is on the line.

Capital accounts

Maintain a capital account for each partner reflecting contributions, allocated profits and losses, and distributions. Clean capital accounting is essential for the tax treatment of a partnership and for a fair wind-down if the LP ever dissolves.

How money moves through the partnership is the heart of the agreement, and it's where general and limited partners' interests are balanced.

Allocation of profit and loss

Specify how profits and losses are allocated among partners. This need not track contribution percentages, and in many LPs it deliberately doesn't — a general partner might take a larger share of profits (a "carry") as compensation for managing, while limited partners get allocations proportional to their capital. Whatever the arrangement, write it down precisely.

Distributions

Allocation and distribution are different things: allocation determines whose income it is for tax purposes, while distribution is when cash actually goes out. The agreement should define when distributions are made, in what order, and on what priority. A common structure gives limited partners a preferred return — a first claim on distributions up to a set rate — before general partners share in the upside. Spell out the waterfall so there's no ambiguity about who gets paid first.

Tax allocations

Because a partnership passes income through to partners via Schedule K-1, the allocation provisions have direct tax consequences. Have a CPA review them so the allocations hold up and reflect the economic deal.

The agreement defines the two roles and, critically, keeps them from bleeding into each other in ways that erode a limited partner's protection.

General partner authority and duties

Lay out what the general partner or partners can do unilaterally — ordinary operations, contracts, hiring — and which major actions require limited-partner consent, such as selling the partnership's principal assets, admitting new partners, taking on major debt, or amending the agreement. General partners owe fiduciary duties to the partnership; the agreement can define and, within legal limits, tailor those duties.

Limited partner protections and safe harbors

Limited partners are passive by design, but they're not powerless. The agreement should grant them defined rights — information and inspection rights, votes on the major matters listed above, and protections for their capital — written carefully so exercising them stays within the statutory "safe harbors" that don't count as participating in control. The whole point is to give limited partners meaningful protections without tipping them into general-partner status and unlimited liability.

The general partner's liability

A general partner is personally liable for the partnership's obligations — that's the defining risk of the role. This is why many LPs use an entity, such as an LLC or corporation, as the general partner: it puts a liability buffer between the humans and the partnership's debts. If you're structuring it that way, the agreement and your other formation documents should reflect it consistently, with an attorney's input.

A good agreement anticipates the future, not just the launch.

Admitting and removing partners

Set the process for bringing in new limited partners, adding or replacing general partners, and what consent each requires. Because the departure of a sole general partner can dissolve the partnership, provide for a successor so one person's exit doesn't accidentally end the entity.

Transfers of interest

Define whether and how a partner can transfer their interest — rights of first refusal, approval requirements, and whether a transferee becomes a full partner or only an assignee of economic rights. Unrestricted transferability is rarely what partners actually want.

Dissolution and winding up

Name the events that dissolve the partnership and the order of winding up — creditors first, then partner distributions per the agreement. Aligning your dissolution terms with the statute and stating the distribution waterfall clearly makes an eventual close orderly instead of contentious.

Get it drafted properly

This is not a fill-in-the-blank exercise. The economics and protections in a limited partnership agreement carry real legal and tax weight, so have a Tennessee attorney draft or review it and a CPA check the allocations. We handle the state filing that creates your LP; the agreement that governs it is worth professional drafting.