1. Limited Partnership
2. California Limited Partnership Requirements
3. Advantages
4. Disadvantages
5. Steps to Form a Limited Partnership in California

A California Limited Partnership refers to a type of business entity in the state of California that consists of at least one limited partner and one general partner. A limited partnership combines elements of a general partnership with the limited liability of a corporation.

Limited Partnership

A limited partnership, or LP, occurs when two or more partners conduct a business in which one or more of the partners is liable only for the amount of money invested.

  • The general partner:
    • Has full management control of daily functions.
    • Responsible for the company's debts and obligations.
    • Can be a corporation or a limited liability company.
  • The limited partners:
    • Are investors.
    • Give up management control for monetary protection.
    • Liable for the amount of money invested.
    • Can't withdrawal their investments without permission from the the general partner(s).

California Limited Partnership Requirements

The Business Entities Division of the California Secretary of State outlines and regulates the conditions a business must follow to establish a limited partnership. California state requirements include:

  • A minimum of one general partner and one limited partner.
  • A service agent who lives and is employed in the state of California. This agent is responsible for the limited partnership's legal paperwork.
  • The LP has to have a business location in California.
  • For in-state businesses, a Certificate of Limited Partnership Form
    • Includes:
      • Name of the company.
      • The company's California office address.
      • Mailing address if different that the office.
      • Service agent's name.
        • Address must be included if the agent is a person.
      • Names, addresses, and signatures of each general partner.
  • For out-of-state businesses operating in California, a Foreign Limited Partnership Application:
    • Includes:
      • Name of LP.
        • If the name doesn't meet state standards, another name must be provided.
      • Mailing and street address of the company.
      • Any other addresses that the company is responsible for.
    • Where and when the first LP was created.
    • Name and address of the LP's service agent, who must live in California.
    • All general partners names and addresses.
    • A minimum of one signature from a general partner.

All required documents can be found on the California Secretary of State website, and can be sent by mail or filed in person.

Advantages

Forming a limited partnership in California has several advantages. Both partners benefit from revenue, investment profits, minimal income taxes, and tax incentives. Other advantages include:

  • Access to resources and programs that provide support and business advice, such as the Small Business Development Centers.
  • Basic reporting and meeting requirements where an annual report, yearly meetings and minutes are not required.
  • Special tax treatments: partners are taxed individually on income based on their share of the profits and losses.
  • Business structure:
    • Forming an LP is easy
    • Informal organization
    • Job responsibilities and rights are distinct and clear
    • Reassigning ownership and management roles are more difficult
    • One person is liable for debts
    • General partners have to act in the best interest of the company and their partners

Disadvantages

Limited partnerships in California must pay an $800 annual franchise tax. Also, out-of-state partners are subject to withhold income tax if income is more than $1500.

Steps to Form a Limited Partnership in California

Step 1: Register with the California Secretary of State

Fill out the Certificate of Limited Partnership through the California Secretary of State's website, and submit via mail, in person, or online, and pay the $70 fee. Choose a name for the business. Below are some guidelines to follow:

  • Choose a unique name that is not registered with the California Secretary of State unless the company is given permission through the court or through acquisitions.
  • Check that the name is available using the business search on the Secretary of State's website.
  • The name has to end with: "Limited partnership", "L.P.", or "LP".
  • The business's name can't have terms such as corporation, incorporated, bank, insurance, corp, trustee, inc., or trust.

Out-of-state applicants must fill out a Foreign Limited Partnership Application for Registration form, and pay $800 in annual taxes to California. The form can be found on the Secretary of State's website.

Step 2: Prepare a Partnership Agreement

A partnership agreement is not required, but recommended to prevent possible problems.

Step 3: Get Local Business License and Comply With Local Laws

Laws and requirements may differ by jurisdiction. Information can be found at the CAlGold Business Permits website.

Step 4: Obtain an Employer Identification Number (EIN)

An EIN is obtained through the IRS. Visit the IRS website for EIN information and application.

Step 5: Pay California Limited Partnership Taxes/Fees

Limited Partnership tax information can be found on the California Legislative Information website.

If you need help with California Limited Partnership, you can post your legal need (or post your job) on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.