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St. Mary's Law Journal

Abstract

This article examines the liability provisions of the Texas Revised Act Section 3.03 and compares it with other uniform limited partnership acts. It attempts to ascertain the amount of control a limited partner can exercise over the partnership without risking unlimited liability as a general partner. Limited partners invest capital and share in the profits of the business, but their liability is limited to the amount of capital they invest. If the limited partners exercise control over the business, however, the limited partners may forfeit their limited liability and become liable as general partners. In the last century, the law of limited partnerships changed to keep up with the evolving uses of the business entity. The liability section of the Texas limited partnership statute is a chief concern of limited partners contemplating entrance into a limited partnership. This article discusses what factors should control limited partner liability and recommends certain revisions in the legal tests for such liability.

The Texas Revised Act makes limited partnerships more appealing to investors. Although the revised act is an improvement over the prior law in Texas, there are still areas left to litigate. This introduces uncertainty regarding the ultimate rights and obligations limited partners may have against third party creditors. Creditors should have no claim to limited partners’ personal assets unless, when they decided to do or continue to do business with the partnership, they actually and reasonably relied upon the possibility of reaching those assets. Limited partners should not have their personal assets jeopardized by a technical rule violation which actually and reasonably misled no one. Enhancing certainty even further regarding limited partner liability, both for limited partners and creditors, should further enhance the value of limited partnerships as business vehicles.

Publisher

St. Mary's University School of Law

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