Articles Posted in Partnerships

In my San Jose law practice, I often meet with clients who tell me they want to form a certain type of entity, and then proceed to tell me some facts that actually disqualify them from that form of entity. Even worse is when the client tells me that some other advisor told them they should be that form of entity. Recently, I met with a Cupertino real estate investor who said his financial advisor told him he should form an LLP for his property (he was not eligible to be an LLP). In Silicon Valley, we have a lot of do-it-yourselfers who form their own company online and then regret their ill-informed choice of entity and have to pay an attorney a lot more to fix the problem than they would have paid to do it right in the first place.

Here are some basic facts about LPs, LLPs and LLCs in California to help you make a more knowledgeable initial decision.

LP: This stands for “Limited Partnership.” In a limited partnership, at least one partner must be a general partner, which means that partner will be personally responsible for any liabilities of the partnership, as well as partnership decisions. The limited partners are not responsible for partnership liabilities, but also do not have any say in the management of the partnership.

Since 1995 only attorneys, architects and accountants were eligible to practice as a limited liability partnership in California. However, as of September 30, 2010 new rules now allow engineers and land surveyors to take advantage of the LLP form of entity as well.

Although the law currently only extends until January 1, 2016, this is still great news for engineers and land surveyors that may have wanted a liability protection entity for their businesses, but did not want to deal with the hassle of annual meetings and minutes required of a corporation. These businesses are not eligible to be limited liability companies (LLCs) because of the restriction in the LLC Act preventing any business that requires a license or certification under the Business and Professions Act to be an LLC in California.

Section 16306(c) of the California Corporations Code provides in part that: “… a partner in a registered limited liability partnership is not liable or accountable, directly or indirectly, including by way of indemnification, contribution, assessment, or otherwise, for debts, obligations, or liabilities of or chargeable to the partnership or another partner in the partnership, whether arising in tort, contract, or otherwise, that are incurred, created, or assumed by the partnership while the partnership is a registered limited liability partnership, by reason of being a partner or acting in the conduct of the business or activities of the partnership.”

This liability protection is a very important reason to operate your business through an LLP.

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