CORONAVIRUS UPDATE FOR COMMERCIAL TENANTS

Corporate Responsability

Limited Liability Partnership (LLP)

Limited Liability Partnerships (LLPs) are similar to Limited Liability Companies (LLCs) but are formed by professionals such as attorneys, accountants and architects. In fact, in California only attorneys, accountants and architects may form an LLP. Each state has different requirements for the forming of an LLP. Like the Professional Corporation, all partners in the LLP must be licensed professionals themselves. For instance, a non-accountant may not partner with two accountants to form a California LLP. Each profession is governed by its own licensing board and anyone forming a California LLP should first be familiar with the rules governing their own profession and should consult a San Diego corporate lawyer for advice. 

LLPs are designed for professionals interested in forming partnerships with other professionals while simultaneously limiting their personal liability for the tortious conduct of their partners. LLPs insulate the partners from liability much like the limited liability associated with incorporating or forming an LLC (the partners are not personally liable for the debts and/or obligations of the LLP). However, the LLP does not shield each partner from liability incurred by their personal conduct (an attorney partner in an LLP cannot shield himself from his own malpractice). Adequate professional liability insurance is thus still necessary. 

In addition, the LLP offers professionals the flexibility of partnerships in general (partnership agreements are not restricted by all the rules associated with incorporating). All of the partners are able to play an active role in managing the day-to-day affairs of the business. They determine the organizational structure of the partnership, how profits and losses will be distributed and when and under what procedures the partnership may be terminated. The partners may agree to almost any form of management including giving one partner more control over the management of the business than the other partners. While the individual partners remain responsible for any liabilities arising out of their personal acts or omissions, the partnership agreement can apportion each partner's responsibility for the company's debts and other liabilities in any manner the partners choose. However, the partners are not allowed to limit liability for their own tortious conduct.

In order to ensure maximum liability protections for the partners, it's important that the partnership comply with California's requirements for maintaining an LLP. Significantly, the LLP needs to be properly registered with the California Secretary of State and maintain adequate insurance (or provide evidence of other security). In addition, attorneys forming LLPs are required to register their LLP with the California State Bar.  Because of the complexities involved in forming and maintaining LLPs, it's best to seek the advice of a corporate attorney in San Diego.  Even experienced lawyers do so when setting up their own LLPs.  

Tax Treatment

The LLP is not taxed as an individual business entity for income tax purposes. However, in California it does have to pay the annual state minimum franchise tax which is currently $800.00. Instead, the partners are taxed individually based on their distributive share of the annual profits and losses (the same pass through taxation available to LLCs and S-Corporations). In short, they are taxed the same way any sole proprietorship or general partnership is taxed and each partner reports his profits and losses on his or her own income tax return.

To form a California LLP, the partners are required to file an Application to Register a Limited Liability Partnership with the California Secretary of State. The Application is similar to filing Articles of Incorporation or Articles of Organization for LLCs. Finally, while not required, a written partnership agreement prepared by a corporate lawyer in San Diego setting forth the rights and obligations of the partners is highly recommended.

For a free consultation, please contact San Diego Corporate Lawyer Donald R. Oder at (888) 900-9002.