How to Form a Limited Partnership (LP) in California

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 What is an LP (Limited Partnership)?

A limited partnership (LP) is a business structure that combines many of the aspects of a general partnership (GP). A limited partnership (LP) is a partnership made up of two or more partners. In a limited partnership the general partners run the majority of the functions of the business while limited partners do not.

The limited partners that are not the general partners are sometimes called “silent partners.” This is because they don’t have the major responsibilities of the general partner and are usually in place for stock and financial considerations. Instead, they are passive owners who don’t participate in the management of the business. 

Another difference between the general partner and limited partner is that the general partner has unlimited liability for debt compared to limited partners who have limited liability up to the amount of their investment. 

Not be confused with a general partner in a LP. In a general partnership (GP) all of the partners are general partners, which means they are solely responsible for all the operations in the partnership and equally liable. In contrast, in an LP, all partners still share an equal stake in the ownership, and all general partners still share equal liability and control of the company. 

Limited partners, on the other hand, generally give up their right to control the company in exchange for limited liability. As stated above, being in an LP as opposed to a GP also offers protection from liability. Rather than being completely personally liable for the LP, a limited partner’s liability is equal to the size of their investment in the LP. Below is a more detailed analysis of what a California limited partnership entails.

What is the Process for Forming a Limited Partnership (LP) in California?

In order to form a limited partnership in California there is a process that must be followed that is regulated by the state.The state of California has similar guidelines to the ones stated above, based on most other jurisdictions. In California, the California Secretary of State enforces the requirements to which a company must adhere to if it wants to become a limited partnership. 

One requirement is that an LP needs to have at least one general partner and one limited partner. Next, a LP in California must be contain  “limited partnership,” “L.P.”, or “LP” in its name, and cant use any  of the following words: “corporation”, “incorporated”, “bank”, “insurance”, “corp.”, “trustee”, “inc.”, or “trust” in its name.

Additionally, the name of the LP must not be the same as a name used by a company already registered with the California Secretary of State. All LPs must have an agent for service of process who can be served any legal documents intended for the LP, and the agent must either be someone living in California or a corporation that is registered to do business in the state. If considering an LP that is a domestic LP, which means that it is being created in California, then it needs to maintain an office in California for the length of its existence.

Any LP that was established in a state other than California or a foriegn country and is now looking to operate in California is considered a foreign LP.  If a foreign LP attempts to engage in business in California without first registering, it will face a large fine. Additionally, it cannot sue anyone in a California court. 

What Type of Paperwork Do I Need to Form an LP?

The paperwork needed to form a limited partnership varies depending on the jurisdiction. However, in California all the paperwork that you will need to file can be found on the California Secretary of State’s website. In order to register an LP, you will need to file a Certificate of Limited Partnership. 

The next step is to complete this form. When completing this form you will need the LP’s name, the address of the LP’s office, a legitimate mailing address for the LP if it would differ from the office address, and the name of the agent for service of process. If the agent for service of process is a person, then you will also need to put down an address for them. All of the LP’s general partners must provide their names, and addresses.  

If you wish to register a foreign LP, you will need to file a Foreign Limited Partnership Application for Registration. This form will ask you to provide the name of the LP, an alternate name if the LP’s original name does not comply with state requirements, the street address and mailing address of the LP, and the address of any office for the LP that it is required by law to maintain. 

You will also need to list where and when the LP was originally established, the name for the LP’s California-based agent of service of process, the agent’s address if the agent is not a corporation, and the names and addresses of the general partners. Finally, at least one general partner will need to sign the form.

What Benefits Does California Give to an LP?

There are many advantages to being registered as an LP in the state of California. Below are a few examples that may persuade you to form an LP. California provides a number of programs and other benefits to help out LPs and other businesses. For instance, any business that is owned by an honorably discharged veteran and sells nonalcoholic items may be eligible for a waiver of local and state license fees and taxes. 

California also offers other waivers that are listed by the Secretary of State. California has a network of Small Business Development Centers that provide guidance to small businesses based in the state. This is great for networking and learning more about the opportunities of having an LP in California. 

What Disadvantages Does California Give to an LP?

While there can be advantages to filing an LP as stated above, there can also be disadvantages that should be considered. All LPs registered in California must pay a fee in the form of an annual franchise tax. 

Also, California requires LPs with partners who live outside of the state to withhold income tax on any income they receive from the LP if that income exceeds a certain amount of income. Finally, unlike other states that have the same withholding requirement, California does not allow for partners to opt out of the withholding by formally agreeing to pay the tax themselves.

Do I Need to Hire a Lawyer for Help with a California Limited Partnership?

Registering for a Limited Partnership in California can be a long and complex process. While it is possible to file for an LP in California on your own it may be beneficial to contact a lawyer. If you have any questions, or need guidance on the more technical aspects of filing an LP you should contact a California corporate lawyer.

A business lawyer will provide advice and guidance on some of the intricacies of forming an LP. If needed, they can also represent you in a court of law. Finally, if you need more specific information you can contact the California Secretary of State.

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