Here are the steps to form a limited liability partnership (LLP) in California. LLPs are governed by state law and must be registered with a state office. An LLP usually is formed from a preexisting general partnership. (In some cases, not covered here, an LLP is formed from a preexisting limited partnership.) However, the creation of the preexisting general partnership often can be little more than a formality, and often can be subsumed into the process of forming the LLP.
As of January 1, 2016, California law recognizes three kinds of LLPs:
This article only covers the first kind of LLP.
Note: As California's LLP law currently stands, two additional professions that previously have been allowed to form California LLPs—engineering and land surveying—are barred from forming LLPs as of 2016. If you currently practice one of the latter two professions and are interested in creating an LLP, make sure to check for any new updates in the LLP law or consult with a local business attorney. In addition, architects currently are scheduled to be barred from forming a California LLP as of 2019.
In California, limited liability partnerships are more formally known as registered limited liability partnerships or RLLPs. This article uses the more generic abbreviation, LLP.
The name of a California LLP must contain the words "Registered Limited Liability Partnership" or "Limited Liability Partnership" or one of the abbreviations "L.L.P.," "LLP," "R.L.L.P.," or "RLLP" as the last words or letters of its name.
You create a California LLP by filing a Registration with the California Secretary of State and paying the required filing fee. To complete the Registration you'll need to provide:
You can download a blank Application to Register a Limited Liability Partnership (LLP) (Form LLP-1) by going to the SOS website. You are not required to publish your Registration.
You may also need to complete a separate filing for your specific profession. For example, the State Bar of California has a Limited Liability Partnership program that certifies professional partnerships to allow each LLP partner to limit his or her liability for the acts of the other partners and LLP employees. Check with your profession's regulatory board for more details.
Every California LLP must have an agent for service of process (registered agent). This is an individual or business entity that agrees to accept legal papers on behalf of the LLP. The registered agent can be either an individual California resident or a corporation that has filed the proper certificate (a California Corporations Code Section 1505 Certificate) with the Secretary of State. The registered agent must have a physical street address in California. You can find a listing of companies that will act as registered agent on the SOS website.
You are not required to have a written LLP partnership agreement in California. However, a written partnership agreement is highly recommended. You don't need to file the agreement with the state. For further guidance, check Nolo's article Creating a Partnership Agreement.
An LLP is a separate legal entity from its individual partners. Therefore, your LLP must obtain a federal Employer Identification Number (EIN) from the IRS. You need an EIN for an LLP even if it has no employees. You can get an EIN by completing an online application on the IRS website. There is no filing fee.
In some cases, for example if you will be selling goods and collecting sales tax or if you have employees, you'll need to register with the appropriate California taxing authority. If you will be collecting sales tax, you'll have to register with California State Board of Equalization (BOE), which you can do online or in person at a BOE field office. For employer taxes, register with the California Employment Development Department (EDD).
In addition, California imposes an $800 annual tax on LLPs. The tax is payable to the California Franchise Tax Board (FTB). For more information about the tax, including guidance on which forms to use for your particular business, check the FTB website.
Depending on what kind of business you are running and where it is located, you may need to obtain local or state business licenses for your LLP. Among other possibilities, these might include licenses related to:
Unlike LLPs in most other states, California LLPs are not required to file annual reports or otherwise annually renew registration.
Before forming an LLP in California it's always advisable to first review the current state law and regulatory board rules for your profession. In some cases, you may find restrictions on whether or how you can form an LLP. California's LLP law states that LLP's providing professional services must comply with "all statutory and administrative registration or filing requirements of the state board, commission, or other agency that prescribes the rules and regulations governing the particular profession in which the partnership proposes to engage . . . ."
Forming your business as an LLP will protect you personally from creditors seeking to collect unpaid debts owed solely by the LLP. Moreover, in most cases, if you are a licensed professional and your LLP is formed to provide professional services, you also are protected from:
California requires every LLP to provide "security for claims against it." This normally means having an insurance policy. (Other options, such as maintaining a separate bank account to cover potential claims, are also permitted, but not discussed here.) The exact requirements vary depending on what kind of professional services are offered (law, public accounting, or architecture) and the number of LLP partners. The current general requirements are:
For more information, check Section 16956 of the California Corporations Code (covering insurance requirements for LLPs) or consult with a California business lawyer.
The regulatory boards of specific California professions may also have additional requirements for maintaining partners' limited liability protection. For example, the State Bar of California requires lawyers who are partners in an LLP to keep up with their professional registration renewals in order to remain eligible for protection from liability from other partners' malpractice. In sum, apart from the state's LLP law, it's always a good idea to double check the California rules for your particular profession regarding minimum insurance requirements, registration renewals, and other issues that may affect your personal liability as a partner.
Meanwhile, you are personally responsible if:
Because professionals are not protected from their own malpractice, if you are a professional you should make sure you have professional liability insurance—and, if applicable, that your coverage meets any state minimum insurance requirements.
California is unique in prohibiting everyone except lawyers, public accountants, and architects from forming an LLP (not counting LLPs that are "related" to the latter LLPs and LLPs formed by professionals licensed in other states). California is also unique in not allowing licensed professionals to form limited liability companies (LLCs) or professional limited liability companies (PLLCs). If you are part of a group of California professionals seeking to structure your business to limit individual liability, your main alternative to an LLP is a Professional Corporation. Non-professionals seeking to form a business in California that limits individual liability should consider options such as an LLC or S Corporation. For more information on business entity choices, including how an LLP differs from other business entities, see the Business Formation section of the Nolo website.