When & Why to Create a Limited Liability Partnership (LLP) in California
Forming the right business entity is one of the most important decisions for any new venture. For certain professional services, a Limited Liability Partnership (LLP) may be the ideal choice. Below, our Fremont business formation attorney explains what an LLP is and when to consider forming one in California.
What is a Limited Liability Partnership (LLP)?
In California, an LLP is a special type of partnership that offers personal liability protection to each partner. It combines the tax flexibility of a general partnership with the legal protections of a corporation—meaning that each partner is not personally liable for the misconduct or negligence of another partner.
However, California limits the types of businesses that can form an LLP. As of today, LLPs are restricted to certain licensed professionals – attorneys, accountants, and architects.
When to Form an LLP in California
LLPs are purpose-built for specific industries, and they offer unique advantages when used appropriately. You should consider creating an LLP if:
- You are a licensed professional working with other licensed professionals: In California, LLPs are often used by law firms, accounting firms, and architectural practices.
- You want partnership-style management with liability protection: LLPs allow each partner to participate in management while shielding them from personal liability for another partner’s mistakes.
- You seek pass-through taxation: Like general partnerships and LLCs, LLPs are not subject to corporate income tax beyond the $800 minimum Franchise Tax (or 1.5% of net income, whichever is greater). Profits and losses pass through to each partner’s individual tax return.
- You want flexibility in structure: LLPs allow you to define how profits, decision-making, and responsibilities are shared among partners.
Examples of Why LLPs Work Well for Licensed Professionals in California
- LLPs are widely used by attorneys or accountants or architectural firms where there is more than one licensed professional in the company.
- The licensed professionals seek to operate with colleagues under a shared name while maintaining personal liability protection from the other partners’ liability
- Licensed professionals often use LLPs for their tax benefits
- LLPs similar to partnerships can define clear division of responsibilities, percentage ownership, and the percentage of sharing of the profits and losses among the partners
Is an LLP Right for You? Ask a Business Formation Lawyer
Because LLPs are only available to certain professions in California, it’s important to confirm your eligibility and evaluate whether this structure aligns with your goals. The right legal counsel can help ensure your partnership is properly registered and legally compliant.
Contact Our California Business Attorney for LLPs Today
Lynnette Ariathurai is a trusted California business formation lawyer. If you are considering an LLP or have questions about which business entity is best for your professional practice, we are here to help. Contact our Fremont office today for a confidential consultation. We serve professionals and firms throughout the Bay Area.