How to Form a Limited Liability Partnership in California

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:

• LLPs formed by California-licensed lawyers, public accountants, or architects
• LLPs formed by people licensed to provide professional services in other states, and
• LLPs that are "related" to other LLPs that practice public accounting or law.

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.

1. Name Your 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.

2. File a Registration

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:

• the official name of your new LLP
• the street address of the LLP's principal office
• the mailing address of the LLP's principal office (if different from the street address)
• the name and street address of the LLP's agent for service of process (registered agent)
• a brief statement of the business in which the partnership engages, and
• a statement that the partnership is registering as a registered limited liability partnership.

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.

3. Agent for Service of Process (Registered Agent)

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.

4. Prepare a Partnership Agreement

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.

5. Get an EIN

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.

6. Register to Pay Taxes

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.

7. Obtain Business Licenses

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:

• your profession
• specific goods or services you'll sell or provide
• an assumed or fictitious name for your business, or
• health and safety matters.

8. No Annual Reports

Unlike LLPs in most other states, California LLPs are not required to file annual reports or otherwise annually renew registration.

9. Professional Services

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 . . . ."

10. Malpractice Insurance

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:

• liability for the malpractice of other LLP partners, and
• people who are personally injured in connection with the LLP because of things having nothing to do with your own professional malpractice or torts (for example, if someone slips and falls in your LLP's offices).

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 LLPs providing legal services, and with five or fewer licensed partners, a minimum policy of $1 million, and for LLPs with more than five partners an additional $100,000 of coverage for each additional partner, up to a maximum required amount of $7.5 million
• for LLPs providing public accounting services, and with five or fewer licensed partners, a minimum policy of $1 million, and for LLPs with more than five partners an additional $100,000 of coverage for each additional partner, up to a maximum required amount of $5 million; and
• for LLPs providing architectural services, and with five or fewer licensed partners, a minimum policy of $1 million, and for LLPs with more than five partners an additional $100,000 of coverage for each additional partner, up to a maximum required amount of $5 million.

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:

• you personally guarantee repayment of a business loan
• you engage in professional malpractice (such as egregiously mishandling a client's case), or
• you intentionally or negligently commit a tort (such as assaulting someone).

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.

Additional Information

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.