A limited partnership (LP) is a business structure that combines many of the attributes of a general partnership (GP), especially in terms of the informality of daily operations and a lack of paperwork beyond basic formalities such as an operating agreement, with the limited liability of a corporation for certain owners, known as partners. In a GP, all of the partners are general partners, which means they all share the ownership, control, and liability for the GP. 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 sacrifice their right to control the company in exchange for limited liability. Rather than being completely personally liable for the LP, a limited partner’s liability is proportional to the size of their investment in the LP.
In California, the Business Entities Division of the California Secretary of State defines and enforces the requirements to which a company must adhere if it wishes to become an LP in the state. One such requirement is that an LP needs to have at least one general partner and one limited partner. Another requirement is that the company’s name must contain “limited partnership,” “L.P.”, or “LP”. It may not contain any of the following words: “corporation”, “incorporated”, “bank”, “insurance”, “corp.”, “trustee”, “inc.”, or “trust”. Also, the name must not be the same as a name used by a company already registered with the California Secretary of State, unless the LP has won the right to use the name through a court case or has acquired the company that is already using the name. All LPs must also 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 and has not lost its ability to serve as an agent. If an LP is a domestic LP, which means that it is being created in California, then it needs to maintain an office in California for the duration of its existence.
Any LP that was originally established in another state or country and is now looking to operate in California is a foreign LP, and all foreign LPs are required to register with the California Secretary of state before transacting business in California. If a foreign LP attempts to engage in business in California without first registering, it will face a fine of up to $10,000, it cannot sue anyone in a California court, any of its partners are completely free of liability for the LP, and the California Secretary of State is automatically appointed as its agent for service of process. Finally, every LP, regardless of whether they are foreign or domestic, must file the appropriate paperwork with the Business Entities Division of the California Secretary of State.
All of the paperwork that you will need to file can be found on the website for the California Secretary of State, and the paperwork can either be filed via mail or in person. To register a domestic LP, you will need to file a Certificate of Limited Partnership. In order to complete this form, you will need to include the LP’s name, the address of the LP’s office in California, a 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, addresses, and signatures.
If you wish to register a foreign LP, you will need to file a Foreign Limited Partnership Application for Registration. This for 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.
Unlike some other states, California does not require LPs to file any sort of annual report. Also, 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 is engaged in selling nonalcoholic items may be eligible for a waiver of all local and state license fees and taxes. California also has a network of Small Business Development Centers that provide guidance small businesses based in the state.
All LPs registered in California must pay $800 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 $1500. 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.
Registering a domestic LP or a foreign LP in California is a complicated process. You can find a California business lawyer here to help you with all your LP formation needs.