Recent Changes in Texas Law Favor Limited Liability Partnerships

The Texas Legislature’s recent changes to the Texas Business Organizations Code went into effect September 1, 2011.  These include several provisions favorable to Limited Liability Partnerships (LLPs).  An LLP is a general partnership (GP) or limited partnership (LP) that chooses to register as a Limited Liability Partnership with the Texas Secretary of State. The intended purpose of an LLP is to limit the liability of all partners to the amount of their partnership investment. Liability protection of this nature is not available at all for general partnerships.  In an LP, such protection is provided for limited partners but not for the general partner.  The LLP is intended to close this gap.

LLCs & General Partnerships in Texas

But before the recent amendments, the liability protection afforded LLP partners was subject to significant exceptions.  Partners could be found personally liable if they were personally involved with  directing the activity at issue or if they had notice of the circumstances giving rise to the problem and failed to take corrective action. For any LLP with partners who are actively engaged in managing the business, these ”exceptions” were large enough to drive a truck through and drastically reduced the practical value of organizing as an LLP.  These exceptions have been eliminated.  Under the law as amended, a partner has no personal liability for any obligation of the partnership incurred while the partnership is a limited liability partnership.

Another potentially bothersome requirement for LLPs was that alone among Texas business organizations, they were required to maintain at least $100,000 of liability insurance or the equivalent.  This requirement has now been eliminated.

One drawback to LLPs that remains is that they are still more expensive to maintain than other forms of business organization in Texas.  The State imposes a registration fee of $200 per year per partner.