California LP (Limited Partnership) San Diego
California LP (Limited Partnership) San Diego Summary
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• The ease of management of a general partnership;
• Availability of capital gains taxes versus income taxes upon the disposition of appreciated assets;
• Not subject to the revenue based California LLC Fee assessed by the California Franchise Tax Board;
• Liability limited for investors to the amount of contributions made;
• Simplified governance compared to other business entities.
Formation of a California LP by San Diego Corporate Law includes an attorney-drafted partnership agreement, drafting and filing of a Certificate of Limited Partnership with the California Secretary of State, and federal EIN application.
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California LP (Limited Partnership) San Diego Details
A California LP is a partnership formed by two or more persons who associate to conduct business as co-owners with at least one “general” partner and at least one “limited” partner. General partners manage and control the California LP, and in doing so have unlimited personal responsibility for all the debts, liabilities, and other obligations of the LP. Limited partners, on the other hand, are not personally responsible for the debts, liabilities, and other obligations of the California LP unless they participate in management of the limited partnership, in which case they are treated as general partners because they have acted as general partners.
Two or more individuals, partnerships, limited partnerships, trusts, estates, association, corporations, or LLCs may form a California LP. California Corporations Code § 15901.02(m), (p), (q), (y).
A California LP must have at least one “general partner” and at least one “limited partner.” General partners participate in the management of a California LP while limited partners do not participate in management.
Attorneys, accountants, architects, and medical professionals are not permitted to perform services as a California LP.
A California LP is formed by filing an executed and acknowledged Certificate of Limited Partnership with the California Secretary of State. California Corporations Code § 15902.01. The filing fee for a Certificate of Limited Partnership is $70.00. California Government Code § 12188(b). While an oral partnership agreement is legally acceptable for a California LP, a written partnership agreement is strongly suggested. California Corporations Code § 15901.02(x), 15902.01.
General partners of a California LP are personally liable, jointly and severally, for limited partnership obligations under the same guidelines as a partner in a general partnership.
Limited partners of a California LP are not personally liable for the debts and obligations of the limited partnership unless the limited partner participates in management of the limited partnership.
The names of general partners of a California LP are public record upon filing of the Certificate of Limited Partnership. Names of limited partners of a California LP are not public record.
The general partner or partners of a California LP manage the limited partnership and may be compensated for such management. Mutual agency applies to California limited partnerships.
Cash and property contributions by partners are the primary source of capital for California limited partnerships. The limited liability and pass-through tax treatment make California limited partnership interests attractive to investors who contribute in exchange for limited partner status. However, the inability of limited partners to partake in management without incurring general partner liability makes limited partnerships unattractive to venture capitalists or other investors who wish to partake in management.
Interests in a California LP, both general and limited, may be issued in more than one class, with each class having different rights, powers, and duties. California Corporations Code §§ 15903.07, 15904.09.
General partnership interests of a California LP are generally not characterized as securities. Limited partnership interests of a California LP are generally characterized as securities.
Federal Securities Issues
Federal securities laws should be considered for offers and sales of limited partnership interests of a California LP. Regulatory filings may be required either to qualify an offering and sale or to receive an exemption.
California Securities Issues
All offers and sales of securities in California, unless otherwise exempted, require qualification with the Commissioner of Corporations. One or more filings may be required either to qualify an offering and sale or to receive an exemption. California Corporations Code §§ 25000-25707; 10 California Code of Regulations §§ 250.9-260.617.
Other State Securities Issues
The securities laws of other states (commonly referred to as “blue sky” laws) may also apply and should be considered when limited partnership interests of a California LP are offered or sold outside California.
Unless a California LP elects to be taxed as a corporation, it is taxed in the same pass-through manner as a general partnership. California limited partnerships are also subject to an annual franchise tax paid to the State of California Franchise Tax Board. California Revenue and Taxation Code §§ 17935, 23153. Employment taxes and workers’ compensation insurance are required on employees’ wages.
A limited partnership interest of a California LP is the personal property of the limited partner and, as such, is transferrable in whole or in part. Transfer of a California limited partnership interest does not dissolve a California limited partnership or entitle the transferee to become a partner. California Corporations Code §§ 15907.01-15907.02.
A California LP dissolves and its activities are wound up when: (a) an event specified in the limited partnership agreement occurs; (b) all general partners and limited partners owning a majority of the rights to receive distributions consent; or (c) a general partner departs under certain circumstances. California Corporations Code § 15908.01.
The organization of a California LP for $2,570.00 assumes acceptance by all proposed partners of the first draft of the limited partnership agreement. Negotiated amendments to the partnership agreement available by quotation. Filings required by applicable federal and blue sky securities laws available for additional fees and with additional costs.