Basic Structure of a Partnership in California

Basic Structure of a Partnership in California

Basic Structure of a Partnership in California

Before starting a business partnership, you will want to make sure your legal interests are well documented and accounted for. Brush up on the legal classifications of partnership in California here.

General Partnership

General partnerships are defined by California law as a commercial entity made up of two or more businesses formed for the purpose of conducting a deal or other business. Each participant in a general partnership provides money, property, labor, or particular abilities to the venture. The earnings and losses are shared between entities. This category encompasses the majority of partnerships in California.

Limited Liability Partnership

Public accounting, legal, and architecture businesses in California can create a Limited Liability Partnership (LLP). An LLP offers limited liability protection to all participants and must be registered with the California Secretary of State before conducting business in California.

Forming a Partnership Agreement

A partnership is created when two or more people start a business together. Partnerships are simple to form, but they can come with legal risks. As a partner, you may be personally accountable for credit, litigation, and other obligations. You’ll also need to discuss the obligations among partners, profit and loss sharing, and other business concerns. Although it is not required by California law, having a firm written partnership agreement is a good idea.

A partnership agreement is a legally binding document that sets out how the partnership will operate. The following elements may be included in a comprehensive partnership agreement:

Distribution of Power: This describes how the partnership will make decisions, which may differ when it comes to day-to-day operations vs more important calls. Outlining the procedure from the start might help you prevent subsequent conflicts and stalemates.

Disputes: While partners hope that conflicts do not happen, having a defined method in place for dealing with them will help avoid fallout or tension between partners.

Contributions/Funding: It’s crucial to keep track of how much money each person puts in. What is the procedure if the company requires more funds or wants to attract investors? The specifics of these situations can be outlined in the partnership agreement.

Compensation: Salary and payouts are two examples of compensation. The when, how, and what values are dispersed should be explicit.

Dissolution: What happens if a company goes out of business? This is something that should be discussed when the partnership is formed. Having the procedure agreed upon and stated ahead of time may save you time and money in the long run.

Death or Disability of a Partner: While this is an unfortunate scenario to consider, it is critical to plan ahead of time. What will the partnership’s strategy be in this situation? Planning may  involve insurance, inheritance, or stock buyouts, as well as whether or not beneficiaries have stake.


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