Texas Partnership Agreement: TBOC Chapter 152, Filing Fees, Franchise Tax
Updated May 2026. Texas partnership law is consolidated in the Texas Business Organizations Code (TBOC). The state recognises LLPs and LLLPs, has no income tax but does impose the Texas Margin Tax on certain entities, and enforces reasonable non-competes. This page covers the entity choices, the filings, the tax, and the drafting specifics. General legal information, not legal advice.
General information, not legal advice. Texas franchise tax thresholds and rates change periodically; verify current figures with the Texas Comptroller before relying on them for planning.
The Texas Entity Choice
Texas provides the full menu of partnership forms:
| Entity | Statute | Liability | Filing fee |
|---|---|---|---|
| General partnership (GP) | Tex. BOC Ch. 152 | Unlimited personal | None (no filing required) |
| LLP | Tex. BOC §§152.801-152.806 | Limited (with insurance/bond) | $200 per partner (capped at $750) |
| Limited partnership (LP) | Tex. BOC Ch. 153 | GP unlimited; LP limited | $750 certificate of LP |
| LLLP | Tex. BOC §153.351 | Both GP and LP limited | $750 certificate + LLLP designation |
Unlike California, Texas does not restrict LLPs to professional services; any partnership can register as an LLP. Unlike California again, Texas recognises the LLLP, eliminating the need to interpose a corporate or LLC general partner in an LP structure. Most operating businesses still use an LLC (formed under Tex. BOC Ch. 101) for simplicity, but the LLP and LLLP are real alternatives in Texas.
The Texas Franchise Tax (Margin Tax)
Texas does not have a state income tax for individuals or partnerships. Instead, certain business entities owe the Texas Franchise Tax (commonly called the Margin Tax), imposed at the entity level. General partnerships are exempt from the Margin Tax; LPs, LLPs, LLCs, and corporations are subject to it.
The Margin Tax is calculated on the entity’s margin, with margin defined as the lowest of:
- Total revenue less cost of goods sold;
- Total revenue less compensation;
- 70% of total revenue;
- Total revenue less $1 million (the “EZ computation” for entities under $20M of revenue).
The 2026 tax rate is 0.375% for retail and wholesale activities and 0.75% for all other business activities. There is a no-tax-due threshold of $2.47M of total revenue (for 2024-25 reports; verify current threshold); entities below that threshold owe no tax but must file a No Tax Due Report. Returns are due 15 May each year for the preceding calendar year, with an automatic extension to 15 November on filing of Form 05-164.
For a typical Texas LLP with $5M of revenue and $3M of compensation in a service business: margin is the lowest of $5M minus COGS (n/a in services), $5M minus $3M = $2M, 70% of $5M = $3.5M, $5M minus $1M = $4M. The lowest is $2M; tax at 0.75% is $15,000 annually.
LLP Insurance / Bond Requirement
Texas LLPs must maintain liability insurance of at least $100,000 per claim aggregate (Tex. BOC §152.804). In lieu of insurance, the LLP can post a $100,000 bond or maintain $100,000 in segregated funds dedicated to satisfying partnership claims. This is a meaningful cost item that distinguishes the Texas LLP from the standard form: a Texas LLP with no insurance and no segregated funds loses its limited liability shield.
Practical implication: every Texas LLP should maintain a commercial general liability policy or a professional liability policy (for professional services partnerships) with at least $100,000 per claim coverage, ideally significantly more. The partnership agreement should require the partners to maintain the policy and to report any cancellation or non-renewal promptly.
Sample Texas-Specific Provisions
Texas-Specific Tax Planning
Texas’s no-state-income-tax posture is a meaningful planning advantage for partnerships with mobile partners. Partners domiciled in Texas pay no state income tax on their distributive shares (federal tax still applies). Compared to California (top state rate 13.3%) or New York City (top combined rate approximately 14.8%), the savings compound to material amounts at high income levels.
The corollary: partners in a Texas partnership who are domiciled in income-tax states still owe state income tax to their state of residence. A New York-resident partner in a Texas partnership pays New York personal income tax on their distributive share. The partnership’s Texas filing does not insulate the partner from their personal-state tax. This is a common source of confusion among multi-state partnerships.
Sourcing rules add complexity for partnerships with multi-state operations. The Texas Comptroller applies an apportionment formula to determine the Texas-source portion of partnership revenue; partners in other states then apply their state’s sourcing rules to the K-1 amounts. A Texas LLP with offices in Dallas and clients across the country files apportioned Texas Margin Tax based on Texas-source revenue and issues K-1s to partners that report distributive shares per the agreement. Partners in non-Texas states then determine the portion taxable in their home state under their state’s rules.
Authoritative Sources
- Tex. BOC Ch. 152 (general partnerships). Texas Legislature.
- Tex. BOC Ch. 153 (limited partnerships).
- Tex. BOC §§152.801-152.806 (LLP provisions).
- Tex. BOC §153.351 (LLLP designation).
- Tex. Bus. & Com. Code §15.50 (non-compete enforceability standard).
- Texas Tax Code Chapter 171 (Franchise Tax / Margin Tax).
- Texas Comptroller Franchise Tax Overview. Texas Comptroller.
- Texas Secretary of State Business Filings. Texas SOS.
FAQ
What law governs Texas partnerships?
The Texas Business Organizations Code (TBOC), Chapter 152, governs general partnerships. Chapter 153 governs limited partnerships. Chapter 152, Subchapter J covers LLPs (limited liability partnerships); Chapter 153, Subchapter G covers LLLPs (limited liability limited partnerships). The TBOC took effect 1 January 2010, consolidating the prior Texas Revised Partnership Act, Texas Revised Limited Partnership Act, and other separate statutes. Texas has adopted both LLPs and LLLPs and is one of the more partnership-friendly major states.
Does Texas have a partnership franchise tax?
Yes. Texas does not have a state income tax, but it imposes the Texas Franchise Tax (also called the Margin Tax) on most business entities including LPs, LLPs, and LLCs (general partnerships are not subject to it). The tax is calculated on the entity's margin (lower of revenue less cost of goods sold, revenue less compensation, 70% of revenue, or revenue less $1M). The 2026 rate is 0.375% for retail and wholesale and 0.75% for other business activities. The no-tax-due threshold for the 2024-25 reports is $2.47M of total revenue; entities below the threshold owe no franchise tax but must file a No Tax Due Report (Form 05-163).
How do you form an LLP in Texas?
File an Application for Registration of a Limited Liability Partnership (Form 701) with the Texas Secretary of State, with a $200 filing fee per partner (capped at $750). The LLP must include 'LLP' or 'L.L.P.' in its name. Renewal is required annually by submitting a Renewal of Registration (Form 703) on or before the anniversary of the original filing, with the same per-partner fee structure. Texas LLPs also must carry liability insurance of at least $100,000 per claim aggregate per Tex. BOC §152.804 (in lieu of insurance, the LLP can post a $100,000 bond or maintain $100,000 in segregated funds).
Are Texas non-compete clauses enforceable?
Yes, if reasonable. Tex. Bus. & Com. Code §15.50 explicitly authorises non-compete agreements subject to a reasonableness standard. The agreement must be ancillary to an otherwise enforceable agreement (the partnership agreement qualifies), supported by consideration (the partnership interest qualifies), and reasonable in geographic scope, duration, and activity restriction. Texas courts apply the reasonableness test pragmatically, blue-pencilling overly broad provisions rather than striking the clause entirely. Periods of 1-3 years are typical; longer periods are enforceable in connection with sale of a business.
What is a Texas partnership statement of partnership authority?
Under Tex. BOC §152.802, a partnership may file a Statement of Partnership Authority with the Secretary of State setting out who has authority to bind the partnership, particularly with respect to real property transactions. Filing the statement gives constructive notice to third parties of the partners' authority (or lack thereof). The statement is optional but useful for partnerships that want to limit individual partners' agency authority publicly without relying on the underlying partnership agreement being known to counterparties. Filing fee is $100.
Texas Partnership Drafting
Texas is one of the friendlier states for partnership formation. Use the builder to draft, then verify Margin Tax and LLP insurance specifics with local counsel.