The Texas Limited Partnership Agreement — What It Covers and Why It Matters

The limited partnership agreement is the private contract among the partners that governs how the LP operates internally. Where an LLC has an operating agreement, a limited partnership has a partnership agreement, and it does the same job: it sets the rules the partners live by, filling in everything the public Certificate of Formation deliberately leaves out.

Why it matters more for an LP than for an LLC

An LLC can, in a pinch, run on default statutory rules with every member on roughly equal footing. A limited partnership cannot afford to be casual about its agreement, because the entire structure rests on an asymmetry: general partners manage and are personally liable, while limited partners invest passively and are protected. That asymmetry has to be spelled out. Who can do what, who bears which risk, who gets paid in what order — none of it is obvious, and none of it is safe to leave to default rules.

Private, not public

Texas does not require you to file the partnership agreement, and you should not. It never enters the public record. The Certificate of Formation names the general partners and the registered agent; the agreement handles the money and the governance, and it stays between the partners. This is part of why investment vehicles favor the LP form — the economics are confidential.

At the heart of the agreement is the money: what each partner puts in, what they get out, and in what order. This is where the general-partner/limited-partner distinction becomes concrete.

Contributions

• Initial contributions. What each partner contributes at formation — cash, property, services, or a promise to contribute — and the value assigned to each.
• Additional contributions and capital calls. Whether partners can be required to put in more later, on what terms, and what happens to a partner who does not meet a call. For funds and syndications, capital-call mechanics are central.

Allocations and distributions

• Profit and loss allocation. How the partnership's profits and losses are divided among partners. This often does not track headcount — it commonly follows capital contributed, with the general partner sometimes earning an outsized share (a "carry" or promote) for managing the venture.
• Distributions. When cash actually goes out to partners, in what priority, and under what conditions. A common structure returns limited partners' capital first, then distributes remaining profits per the agreed split.
• Return of capital on wind-up. How assets are distributed if the LP dissolves — an issue that reaches back into the agreement's economics and should be settled up front, not improvised at the end.

The Texas Business Organizations Code supplies default rules for allocations and distributions, but those defaults rarely match a real deal's economics. The agreement is where you override them.

The general partner runs the business, but "runs the business" needs definition. The agreement draws the line between what the GP can do alone and what requires broader consent, and it sets the standards the GP is held to.

Scope of authority

• Day-to-day management. The general partner typically has broad authority to operate the business, sign contracts, and make ordinary decisions without a vote.
• Reserved matters. Certain major actions — admitting new partners, selling substantially all assets, taking on large debt, amending the agreement — are often carved out to require limited-partner consent. Defining these protects investors from unilateral moves on the decisions that matter most to them.

Duties and liability

• Fiduciary duties. The general partner generally owes duties of loyalty and care to the partnership; the agreement can define and, within statutory limits, modify how those duties apply.
• Personal liability. The agreement does not erase the general partner's personal liability for partnership debts — that is a feature of the form — but it clarifies the GP's role and can address indemnification for actions taken in good faith on the partnership's behalf.
• Compensation. Whether and how the general partner is paid for management — a management fee, a share of profits, or both — belongs here.

Because the general partner carries real exposure, and because limited partners are trusting that partner with their capital, this section is where careful drafting earns its keep.

Limited partners get protection in exchange for staying passive, and the agreement has to make that bargain workable — giving investors enough rights to protect their money without letting them cross into management and forfeit their shield.

What limited partners typically get

• Economic rights. Their share of profits and distributions, per the allocation provisions.
• Information rights. Access to the partnership's financial records and reports so they can monitor their investment.
• Consent rights on major matters. A vote on the reserved matters described above, so the general partner cannot unilaterally reshape the deal.

The control line

The defining constraint of the limited-partner role is that active participation in management can jeopardize liability protection. The agreement should make the boundary clear — distinguishing permitted oversight (reviewing reports, voting on major decisions, consulting) from prohibited day-to-day control that would recharacterize a limited partner's status. Texas law provides some protections here, but a well-drafted agreement reduces the risk of an ambiguous act being read as management.

Transfers and admission

The agreement governs whether and how a partner can sell or transfer their interest, whether the partnership or other partners have a right of first refusal, and how new limited partners are admitted. For an investment vehicle, controlling who can hold an interest is often as important as the economics.

It is legally possible to have an oral or handshake partnership arrangement, but for an LP it is a genuinely bad idea. A written agreement is what makes the structure real, enforceable, and defensible.

What a written agreement does

• Prevents disputes. When partners disagree later — over a distribution, a decision, an exit — the agreement is what resolves it. Without one, you argue over what everyone "understood," and the statutory defaults decide.
• Reinforces liability lines. A clear agreement documenting the passive role of limited partners and the managing role of the general partner supports the very liability distinctions the LP form depends on.
• Satisfies third parties. Banks opening the partnership account, investors doing diligence, and counterparties negotiating deals often want to see the agreement. Not having one signals an unfinished entity.
• Overrides unhelpful defaults. The Business Organizations Code fills every gap you leave. Its defaults are reasonable in the abstract but frequently wrong for your specific deal. The agreement is your chance to write the rules that actually fit.

Where Mainstay Filing fits — and does not

We prepare and file your Certificate of Formation and serve as your registered agent, but drafting the limited partnership agreement is legal work, and we are a filing service, not a law firm. For a document this consequential — one that allocates money, defines control, and protects the general partner and limited partners alike — work with an attorney who can tailor it to your venture. What we do is get the entity properly formed and keep it in good standing, so the agreement you draft governs a partnership that actually exists in the state's records.