How to Form a Partnership in California

By Tom Speranza, J.D.

How to Form a Partnership in California

By Tom Speranza, J.D.

California law defines a partnership as any "association of two or more persons to carry on as coowners a business for profit."

Man and woman looking at documents at desk

The steps for forming a partnership are as follows:

1. Choose a partnership type.

There are three different types of partnership you can establish in California:

General Partnership (GP)

The simplest of the partnership structures, a GP, is a business arrangement where the partners are personally liable for the debts, obligations, and other liabilities of the partnership. A GP is not required to file a formation document with the state in order to exist. The Uniform Partnership Act (UPA) governs California GPs.

Limited Partnership (LP)

An LP combines features of a corporation and a GP. An LP must have at least one general partner who manages the business and is personally liable for the debts, obligations, and liabilities of the LP and one or more limited partners whose liability is limited to their investment in the LP (like a shareholder in a corporation). The Uniform Limited Partnership Act (ULPA) governs California LPs.

Limited Liability Partnership (LLP)

An LLP is an existing GP engaged in one of the following professions: accounting, law, and architecture. Each of the LLP's partners must be a licensed practitioner in the profession. If the partnership registers as an LLP in California and fulfills the mandatory liability insurance or net worth requirements, the LLP limits each partner's liability for the debts of the LLP and the professional malpractice committed by the other partners. The Uniform Limited Liability Partnership Act (ULLPA) governs California LLPs.

2. Reserve a name for the partnership.

If you are forming a limited partnership, you first need to reserve a name with the California Secretary of State's office by searching the entity name database for an available name, filing a Name Reservation Request Form, and paying the applicable fee listed on the form.

If you are forming a general partnership or limited liability partnership, you don't register the company's name with the Secretary of State. Instead, you register the name as a "doing business as" (DBA) or fictitious name in the county where the company will have its main office. An online legal service provider can assist with the process of obtaining a DBA.

3. File a formation document.

As mentioned above, California GPs do not exist as a formal entity registered with the state—there's no required formation filing.

LPs form by filing a Certificate of Limited Partnership (Form LP-1) while LLPs form by filing an Application to Register a Limited Liability Partnership (Form LLP-1).

An online service provider can assist you with forming your general partnership, limited partnership, and limited liability partnership.

4. Designate a registered corporate agent.

LPs and LLPs must designate a registered corporate agent in their initial formation document. A registered agent gives the California government (including its tax authorities), private citizens, and companies a permanent, reliable location to send mail and legal documents to a business entity that operates in a state.

In California, you must use a third-party company registered with the state as an approved agent. Registered agents charge an annual fee for their services.

5. Draft and sign a partnership agreement.

A written agreement signed by the partners is always a good idea because it allows them to structure their business arrangement to fit their particular situation. A well-drafted partnership agreement includes provisions about how the partners will make business decisions, their required capital contributions, the process of adding or withdrawing partners, and limits on the partners' ability to transfer partnership interests.

If your company doesn't have a partnership agreement, you must follow the standard rules set out in the UPA, ULPA, and ULLPA.

6. Register with federal and state tax authorities.

Even though partnerships do not usually pay income tax at the entity level, your company must obtain a federal employer identification number (EIN) from the U.S. Internal Revenue Service (IRS) to open a bank account and register with California's tax authorities. The IRS issues EINs online or by phone.

A California partnership must also establish accounts with the following state tax authorities:

7. Obtain state and local business licenses.

Various California counties and municipalities require business licenses to operate within their jurisdiction. The California Governor's Office of Business and Economic Development provides a website that can help you figure out what state and local licenses and permits your business requires.

Establishing a partnership in California can be complicated, but your company's accountant and an experienced business lawyer licensed in California are valuable resources to ensure that you comply with your legal obligations.

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.

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