Limited Liability Partnership (LLP)
An LLP is a form of ownership in which all the partners receive limited liability protection. However, 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, or architecture. In addition, per recently chaptered SB 284, engineers and land surveyors are also included in the professions that can be formed as an LLP until January 1, 2019.
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.
- The LLP is a flexible form of business.
- It is 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 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.
- 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.
- LLPs do not pay income tax but they are subject to the annual tax of $800. See Filing Guidelines for more information.
- Every LLP that is doing business in California, has California source income, or has filed a certificate or registered with the Secretary of State is required to file California Form 565. Furthermore, every LLP that is doing business in California, or has filed a certificate or registered with the Secretary of state must pay the annual tax of $800.
- The return due date is the 15th day of the 4th month after the close of the taxable year.
- LLPs must complete Schedule EO, Pass-Through Entity Ownership (565), to report any ownership interest in other partnerships or limited liability companies regardless of whether these entities are required to file a tax return in California, or are subject to California annual tax or LLC fee.
- LLPs doing business or deriving income from within and outside of California will use Schedule R to determine their California income.
- The LLP provides each partner with a California Schedule K-1 that states the partner’s distributive share of the LLP's items of income, deductions, credits, property, payroll and sales.
- To determine if you are doing business in California and/or if your partners are also considered doing business in California, see Doing Business Rules in California.
The LLP has no estimated tax requirements. However, partners may have to make estimated tax payments for their own reporting purposes.
Withholding on California Source Income
- A LLP is considered a withholding agent if they control, receive, have custody of, dispose of, or pay California source income. Get Small Business Withholding Tool | PDF version.
- A withholding agent is required to withhold from all payments or distributions of California source income made to a nonresident payee unless the withholding agent receives authorization from us for a waiver or a reduced withholding amount. Withholding is optional, at the discretion of the withholding agent, on the first $1500 in payments made during the calendar year.
- If a LLP is required to withhold and remit backup withholding to the Internal Revenue Service, they also are required to withhold and remit to Franchise Tax Board, except for instances that are specifically excluded for California purposes.
- The LLP may be required to withhold taxes if the partnership distributes California source taxable income to a nonresident partner. For more information about partnership withholding, see FTB 1017, Resident and Nonresident Withholding Guidelines.