How to Form a Partnership in California
This article discusses some of the basics of forming a California partnership. 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. To learn more about other business entities, give us a call or take a look at some of the other articles we've written about business entity formation and selection here: www.thetafirm.com/articles.
Under California law, "partnership" means "an association of two or more persons to carry on as co-owners of a business for profit formed under Section 16202." (See Cal. Corp. Code section 16101.) A partnership can be formed by operation of law, even where you and your partner don't have a written partnership agreement. There are no formal requirements needed to actually create the partnership. However, a partnership, just like any other business in California, must still comply with local, statewide and national rules and laws. The following is a brief summary of some of the steps a partnership should take to protect their interests:
Step 1: Pick a Name and File the Fictitious Business Name Statement with the County Recorder
If you plan to operate your partnership under a fictitious name (e.g. John Black and Jim Brown want to operate their painting business under the name of "Brown and Black's Express Paint"), then they must file a Fictitious Business Name Statement with the county's recorder.
Each county will have different procedures. In Los Angeles, you can search the Los Angeles County Registrar's website for name availability. You can then fill out and submit the "Application for Fictitious Business Name Statement," which can be found here: http://www.lavote.net/GENERAL/PDFS/FICTITIOUS_BUSINESS_NAME.pdf. As of the date of this writing, there is a $26.00 fee for one business name and one registrant. The Fictitious Business Name Statement in Los Angeles expires five years from the date it is filed in the office of the County Clerk.
Within 30 days of filing your Fictitious Business Name Statement, you must then publish a statement in a newspaper of general circulation in the county in which the principal place of business is located once a week for four successive weeks.
You should also search the California Secretary of State's website to make sure your business name is not too similar to any other business. Search both LLC and corporation names. You can also search nationwide through the US Patent and Trademark Office in order to avoid any possible trademark issues, which you can do at http://www.uspto.gov/trademarks/index.jsp.
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
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)
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: File a Partnership Return of Income
In California, partnerships do not pay state income tax. However, California partnerships 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.
You can reach an attorney at Theta Law Firm by calling us or sending us an email at firstname.lastname@example.org. 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