Who Can Form an LLP in California?

For certain licensed professionals, a AdobeStock_249826261-300x200 (LLP) offers an alternative to general and limited partnerships and limited liability companies and can offer several advantages over those business entities. The California partnerships lawyers at Structure Law Group can help you decide if an LLP is the right choice for your own business.

Only Certain Professionals Need Apply

Unlike a general partnership (GP), limited partnership (LP) or even a limited liability company (LLC), not everyone can form a limited liability partnership (LLP). California law currently limits LLPs to individuals licensed in one of the following professions:

  • Lawyers
  • Architects
  • Public Accountants

The partners in an LLP must be licensed by the State of California in the same profession. You cannot “mix and match” partners from different fields. In other words, a licensed CPA cannot form an LLP with a licensed attorney.

The most important difference between a GP and an LLP is that, with the former, the individual partners can all be held personally liable for the partnership’s debts. This can be critical when it comes to issues such as professional malpractice. For example, if an attorney in a general partnership is sued for malpractice, every member of the partnership would be on the hook for a judgment against the individual partner. But in an LLP, only the individual partner would be held responsible. In short, in a LLP one partner is not liable for the professional malpractice of another partner.

LLP vs. Limited Partnership

A limited liability partnership should not be confused with a limited partnership (LP). An LP is a partnership formed by two or more persons where there is at least one “general partner” and at least one “limited partner.” The general partner is responsible for actually running the business, while the limited partners are merely investors. The limited partners are therefore not liable for the debts of the LP beyond the potential loss of their own investment, so long as they do not participate in running the business.

With a LLP, all of the partners are licensed professionals who typically participate in the business. In this sense, an LLP operates like a general partnership, but provides legal protections generally associated with an LP.

Do You Have to Register an LLP?

Yes. Unlike a general partnership, which does not require filing any special paperwork with the State of California, an LLP must be “registered” with the Secretary of State’s office. This requires filing an application and paying a fee. In addition, LLPs must register with the California Franchise Tax Board. LLPs are pass-through entities, so they do not have to pay income tax on the partnership level, but the LLP is subject to an annual franchise tax of $800. And if an LLP is formed by licensed attorneys, it must also register with the State Bar of California annually.

If you have additional questions about forming a California LLP and want to learn if it might be the right structure for your partnership, please feel free to reach out to SLG today at (408) 441-7500 to connect with a California Corporate Lawyer. You can also contact us online to arrange a consultation.