Under most circumstances, a limited partnership limits the personal liability of its limited partners. This means that a limited partner will not be responsible for the obligations of a limited partnership unless the limited partner is also a general partner or, in addition to exercising the limited partner's rights and powers as a limited partner, the limited partner also participates in the control of the business. When a limited partner participates in the control of the business, that limited partner will be liable to those persons who transacted business with the limited partnership, if the limited partner’s actions caused the creditor to reasonably believe that the limited partner was a general partner.

Additionally, if the limited partner allows the partnership to use the limited partner’s name in the name of the limited partnership, that limited partner may also be liable to creditors of the partnership who extend credit to the limited partnership and who do not actually know that the limited partner is not a general partner. Additionally, using the limited partner’s name will not create liability if the limited partners' name is also the name of a general partner, or the limited partnership has carried on business under that name before admitting the limited partner whose name is being used. Using a limited partnership to conduct business can have tax advantages, depending on a number of factors, including the limited partnership’s expected revenues, the salaries of the owners, and the current tax rates for corporations or individuals. This is because the limited partnership’s income is normally taxed only to the partners rather than to the partnership. This differs from a corporation whose income is taxed both to the corporation and, if distributed, to the shareholder. Although a business could achieve the same objective by incorporating and electing S Corporation status, there are restrictions in the election and effect of S Corporation status that do not apply to limited partnerships.

For more information, please see the accompanying articles: Choice of Entity, Corporations and Corporate Responsibilities, Texas Limited Liability Companies-Formation and Advantages, Registered Limited Liability Partnerships and Limited Liability Companies, Conversion of a Corporation to a Limited Partnership

THIS INFORMATIONAL MEMORANDA FROM THE LAW OFFICES OF THOMAS D. SOLOMON, P.C. is provided as a courtesy to our friends and clients to provide them with items of interest in the limited partnership area. It is not and is not intended to be an exhaustive treatment of its