Business Entities - Limited Liability Partnership

In the state of California, the following are the business entities that are allowed: 

1. Sole Proprietorship
2. Limited Liability Partnership
3. General Partnership
4. Limited Partnership
5. Limited Liability Company
6. Corporations (C-Corporations and S-Corporations)

In the next few blogs, I will be going over the filing requirements for each of these entities, how the entities are created and what forms are required for the entities to file their taxes.  I will also go over the major advantages and disadvantages of each one.  Keep in mind that I am not an attorney, so all I am giving is my opinion.  If you want a legal opinion, please consult an attorney.  I do not dispense legal advice.

Limited Liability Partnership
An LLP is a partnership that engages in the practice of public accountancy, law, architecture, engineering or land surveying.  It also can provide services or facilities to a California registered LP that practices public accountancy or law or to a foreign LLP.

An LLP is required to maintain certain levels of insurance by law.  To register an LLP in California, a Form LLP-1, an Application to Register a Limited Liability Partnership must be filed with the California Secretary of State’s office.

An LLP is a form of ownership in which all the partners receive limited liability protection. An LLP is similar to a general partnership in that all the partners can take an active role in managing the day-to-day affairs of the business. The LLP form of ownership is limited in the State of California to persons licensed to practice in the fields of public accountancy, law, architecture, engineers or land surveyors.  In order to form in California, an LLP must first register with the California Secretary of State. An LLP formed in another state must register with the California Secretary of State prior to conducting business in the state.

In an LLP, there are two classes of partners, general partners and limited partners.  The general partners have unlimited liability and the limited partners have limited liability.  The partners will decide the structure of the organization and the distribution of profits and losses. A formal, written partnership agreement is advisable.  Because it is a form of Partnership, the Partnership will file a form 1065 to file their taxes with the IRS.  The items of income, deductions, credits, and shares of property, payroll, and sales flow through from the partnership to each partner’s California Schedule K-1. Each partner is responsible for paying taxes on their distributive share.  A LLP remains in effect based on partners agreeing to a termination date.  LLPs do not pay income tax but they are subject to the annual tax of $800.