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Setting up a CA Partnership, LLP, or Joint Venture

Legal & Tax Help for New Businesses - by Experienced San Diego Attorneys

San Diego Law Firm offers experienced, highly skilled help for setting up new California businesses, including partnerships, limited liability partnerships, and joint ventures. Our useful, dependable advice can help you choose the business format that will offer you the greatest benefits and ease of operations, so you can meet both your short and long-term goals.

Benefits of a Partnership, LLP, or Joint Venture

Tax Advantages.  In a partnership or joint venture, the partnership itself is not taxed. All profits and losses “pass through” the partnership and are taxed directly to the partners on their individual income tax returns.  This means that any losses can reduce your taxable income - which may be useful if you have a new business which might incur a loss in the first year or two until you get it going.  However, with "pass-through" taxation, the partnership can't retain its earnings from year to year for future investments. Instead, profits are distributed annually; partners are free to invest more money to further the business's growth.

However, if you think your business will need to save up to purchase expensive equipment or real estate, then it would be better for you to form a California corporation, which can retain the earnings and which will likely pay lower income taxes than you will. The drawback is that if you ever want to pay out those earnings to yourself as a shareholder, they will be taxed to you as capital gains.

Management Flexibility.  Effective and efficient management is key to any business, and a partnership enjoys significant flexibility in management, as does an Limited Liability Corporation.  This allows you to allocate management decisions and other responsibilities among partners as best suits your business needs and each partner's strengths.  If an Limited Partnership is formed, generally those persons designated as limited partners cannot manage the business.

Flexibility in Acquiring Partnership Interest.  Aside from capital contributions, you can also acquire your partnership interest by contributing services to the business.

No Corporate Formalities.  The relative informality characteristic of a partnership often makes forming and operating a partnership easier than is the case for a corporation.  Depending on your personal business style, you may prefer to form a partnership, which will not require you to hold regular meetings and keep minutes. 

Differences between a Partnership, LLP, and Joint Venture

Business Continuity.  A partnership continues to exist until terminated by the partners, events described in the partnership agreement, or California law.  Although generally treated the same as a partnership, a joint venture's existence is typically limited to a single project.  We will evaluate your business objectives to assess whether a joint venture will benefit your financial interests more effectively.

Extent of Personal Liability.  The primary drawback to running your business as a general partnership is your personal responsibility.  We will explain these consequences with you in light of the nature of your business and its risks, since you can potentially be held fully liable for all partnership liabilities, debts, and obligations, including those incurred by other partners.  In contrast, an LP or LLP has limited partners and at least one general partner.  The general partner remains personally liable, while the liability of limited partners generally does not extend beyond their contributions and participation in the business.  Further protections are afforded to LLP's.

Formation.  A general partnership may be formed with or without a written agreement, although we can help you protect yourself and your business interests with a well planned written agreement.  Limited partnerships are formed by written agreement, and LLP's may only be formed by professionals practicing public accountancy, law, architecture, and services related to accountancy and law practices. 

Management and Control.  In a general partnership, unless changed by agreement, all partners participate in the management and control of the business.  General partners in a limited partnership are similarly situated.  For the most part, limited partners usually do not have a right to manage the business or share in other responsibilities.  An LLP allows all owners to be actively involved in managing the business.

Transferability of Partnership Interest.  To sell or transfer your interest in a general partnership, you must obtain the consent of all partners.  In a limited partnership, you may sell or transfer your interest, although this does not necessarily mean that you can transfer your rights in the partnership. 

Partnership Stability.  Your business investment may carry greater instability in a partnership because the partnership can terminate automatically if a general partner dies, withdraws, or becomes disabled.  To help improve the security of your investment, we will advise you on how termination can sometimes be avoided under California law. 

How San Diego Law Firm Can Help

Upon hiring San Diego Law Firm's experienced attorneys to form your partnership or joint venture, we will do the following:

  • Make sure that a partnership or joint venture is an appropriate means for growing your business.
  • Prepare your partnership agreement.  Regardless of the type of partnership we form for you, a written agreement is essential to protecting your personal financial interests and to help avoid problems that could hinder the success of your business.  At the outset, we will identify potential problems and create solutions, address termination issues, allocate profits and losses, and establish specific arrangements for the efficient division of partnership management and authority. 
  • If we form a limited partnership for you, we will confirm that the name for your LP is available in California, and reserve it for you. We will also make sure that the name you choose does not violate California law on what types of names and words may be used in a partnership - for example, we check to make sure that your name is not one that will be easily confused with that of an existing LP.  If we form an LLP for you, we will ensure that your LLP's name conforms to California law.
  • Make sure that the particular partnership structure you choose is formed according to its specific legal requirements.  For example, an LLP is required to carry certain amounts of insurance.  Compliance with partnership law is important so that your business can receive the benefits of the chosen partnership structure.
  • Depending on the partnership structure chosen, we will file a Statement of Partnership Authority for your general partnership, or the required certificate for your limited partnership, or register your LLP with the Secretary of State.
  • Obtain federal and state employer tax identification and account numbers so you can operate your business.
  • Identify and apply for any registrations, business licenses, and local permits that you may need to lawfully run your business.

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How to Contact San Diego Law Firm

We handle matters throughout California, and new clients are always welcome. For more information or to make an appointment, please contact us either by:

Telephone: (619) 794-0243

E-mail: contactus@SanDiegoLawFirm.com

Contact Form:
You may also use the form below to contact us. We will answer you as quickly as we can during our business hours, Monday through Thursday, 8:00 AM to 7:00 PM, and Friday 8:00 AM to 5:00 PM.  Please remember that before we can become your attorneys, we must both first sign a written attorney-client agreement, so please do not email any confidential information at this point. After we have reached an agreement with you, we can then exchange information freely. We look forward to helping you.


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