How to Form a Limited Liability Partnership in California
The following is a brief overview of the steps that need to be taken to form a Limited Liability Partnership (LLP) in California. The attorneys of Theta Law Firm are familiar with the formation, maintenance, and dissolution of various business entities in California. For advice on how to form your business or other legal questions relating to your business, please feel free to give us a call or send us an email.
Before forming a Limited Liability Partnership in California, you should consider whether forming an LLP is the best fit for your business. More on that can be found here: www.thetafirm.com/articles .
Note that in California, LLPs can only be formed to provide certain professional services that require a professional state license. More information about professional services can be found here: http://www.dca.ca.gov/about_dca/aboutwho.shtml. Professional service businesses can also consider alternative business entities.
California allows accountants, attorneys, architects (to be phased out in 2019), engineers (to be phased out in 2016) and land surveyors (to be phased out in 2016) to operate their practices as a limited liability partnership (LLP).
Step 1: Register with the California Secretary of State (required)
The first step in forming a limited liability partnership is filing the Application to Register a Limited Liability Partnership (LLP) (California Form LLP-1) with the California Secretary of State. The form is available on the California Secretary of State's website here: http://www.sos.ca.gov/business/be/forms.htm. This form can be submitted online, mailed, or hand-delivered to the California Secretary of State's office. You must also pay a $70 filing fee.
The Application to Register a Limited Liability Partnership must include: (1) the LLP's name, (2) its place of formation, (3) its principal office and mailing address (if different), (4) the type of business the LLP is engaged in, (5) and the name and address of its registered agent for service of process.
Name selection: The LLP's name must end with: "Registered Limited Liability Partnership," "Limited Liability Partnership," "L.L.P.," "LLP," "R.L.L.P.," or "RLLP." Depending on the county you are doing business in, you may also have to register your fictitious business name with the county's clerk. Other restrictions may apply. Contact an attorney for more information about the requirements in your specific county.
Foreign LLPs: Out of state LLPs must register with the California Secretary of State to do business in California. LLPs can register by filling out the same application discussed above.
Step 2: Draft and Execute a Partnership Agreement
While written partnership agreements are not mandatory in California, it is highly advisable to have one drafted and executed by all of the partners. If you don't, everything defaults to California law (e.g., everything is 50/50). Partnership agreements are the number one way to avoid potential disputes (and consequently lawsuits). Among other things, your partnership agreement can cover what each partner's tasks and responsibilities will be, how the partnership will be formed, how profits will be shared (and liabilities), who has access to what documents/property, and how the partnership will be terminated (yes, always plan for it even if you think you and your partner will never disagree). For this step, seek an attorney's advice!
Step 3: Obtain Local Business License and Comply with Local Laws (required)
Different localities have unique rules that apply to businesses within their jurisdiction. Cities in Southern California often require you to obtain a business license to do business in their city. This could be as simple as submitting a form to the city, or it could be much more complicated and require the approval of various local governmental entities.
For example, businesses operating in the City of Los Angeles are required to obtain a business license from the city. Forms necessary for doing business in the City of Los Angeles can be found at: http://finance.lacity.org.
In addition to obtaining the necessary business permit/license, the locality may also require you to pay certain fees and follow other rules.
Each locality is different, so it is best to consult with experience counsel on the subject before opening your doors. The attorneys of Theta Law Firm can help guide you through the web of laws at a low cost.
Additional information can be found at the CalGold Business Permits website: http://www.calgold.ca.gov/.
Step 4: Obtain an Employer Identification Number (EIN) (required)
Don't forget to obtain your Employer Identification Number (EIN): If you plan to form a partnership, you should obtain an Employer Identification Number (EIN) from the IRS. Information about the EIN form and the form itself can be found at: http://www.irs.gov/businesses/small/article/0,,id=98350,00.html.
Step 5: Pay California Limited Liability Partnership Taxes/Fees
A common misperception about LLPs is that they don't have to pay anything annually for taxes; this is not entirely correct. LLPs that are organized in California or conduct business in California must pay the annual minimum tax.
What taxes does a pass-through LLP have to pay?
1) Annual minimum tax: as of the writing of this article, the annual minimum tax in California is $800.
2) Income-based tax: an LLP must pay additional taxes if its income is over a certain level. As of the writing of this article, LLPs with income above $250,000 must pay additional taxes to the California Franchise Tax Board (the amount of additional taxes increases as the LLP's income increases).
California's LLP tax form: LLPs must file a Partnership Return of Income of Income form (California Form 565), which can be found here: https://www.ftb.ca.gov/forms. The form must be filed by the 15th day of the 4th month after the close of the LLP's taxable year.
Pay the California payroll tax: Businesses in California are subject to California's payroll tax if they pay more than $100 of wages in any quarter of a calendar year. This will open your business up to numerous additional regulations/laws/requirements. For more information, see the California Employment Development Department (EDD) here: http://www.edd.ca.gov/.
You must also be sure to satisfy federal laws and tax obligations as well.
You can reach an attorney at Theta Law Firm by calling us or sending us an email at law@thetafirm.com. Theta Law Firm can represent clients all across the State of California, including in any of the following counties: Alameda | Alpine | Amador | Butte | Calaveras | Colusa | Contra Costa | Del Norte | El Dorado | Fresno | Glenn | Humboldt | Imperial | Inyo | Kern | Kings | Lake | Lassen | Los Angeles | Madera | Marin | Mariposa | Mendocino | Merced | Modoc | Mono | Monterey | Napa | Nevada | Orange | Placer | Plumas | Riverside | Sacramento | San Benito | San Bernardino | San Diego | San Francisco | San Joaquin | San Luis Obispo | San Mateo | Santa Barbara | Santa Clara | Santa Cruz | Shasta | Sierra | Siskiyou | Solano | Sonoma | Stanislaus | Sutter | Tehama | Trinity | Tulare | Tuolumne | Ventura | Yolo | Yuba