An LLP is a form of ownership in which "all" partners receive limited liability protection. The LLP is similar to a general partnership in that all partners can take an active role in managing the day-to-day affairs. However, it has the added benefit of providing the limited liability feature, which is not available to a general partnership. The LLP form of ownership is limited in the state of California to professionals working in the fields of law (attorneys), accountancy, and architects.
Key Features
- Designed primarily for specific professional services.
- The partners will decide the structure of the organization and the distribution of profits and losses. A formal, written partnership agreement is advisable.
- The profits and losses "flow down" from the partnership to each partner through the Schedule K-1. Each partner is responsible for paying taxes on their distributive share.
- The LLP allows each partner to actively participate in management affairs.
- The LLP provides limited liability protection to each partner.
- A LLP remains in effect based on partners agreeing to a termination date and as long as all of the general partners remain in the partnership.
Filing Guidelines
- Every partnership that engages in a trade or business in California or earns income from California sources and every LLP that registers with the California Secretary of State is required to file California Form 565.
- The partnership provides each partner with a schedule K-1 that states the partner’s allocation of tax items.
- The return due date is the 15th day of the fourth month after the close of the taxable year.
- An LLP pays an annual tax of $800.
Estimated Tax
- No estimated tax requirements.