- What is a Limited Partnership?
- Doing Business in California and In Other States
- Filing Requirements and Related Questions
- What is an Investment Club?
- Helpful Publications
A limited partnership is formed by two or more entities and must have at least one limited partner and one general partner. Limited partners are only liable for the partnership's debts equal to their investment in the partnership. A limited partner normally has little knowledge or participation in the activities of the partnership, the general partner usually runs the limited partnership.
Caution: Limited partnerships and limited liability partnerships (LLP) are not the same. For more information on LLP's please see the Limited Liability Partnerships section.
Registering to Do Business in California
All foreign limited partnerships doing business in California must register with the California Secretary of State. Domestic partnerships that do not register with the Secretary of State are not limited partnerships.
For more information about registering a limited partnership, call the Secretary of State's Limited Partnership Unit at (916) 653-3365, or visit their Website at: www.ss.ca.gov.
Limited partnerships that do business in California and other states must apportion their income using Apportionment and Allocation of Income (Schedule R).
Example: In 2000, a Nevada limited partnership, opens
an office in California. Since the limited partnership is doing business
in both Nevada and California, it must file a
Partnership Return of Income (California Form 565) and use Schedule R to apportion income between the two states.
Professional partnership apportionment: Multistate partnerships with partners that are classified as professionals must use a special apportionment formula. If you have any questions regarding professional partnerships, please call us at (800)852-5711.
For more information see helpful publications at the end of this section.
- What form do I file for my limited partnership?
Limited partnerships file Partnership Return of Income (Form 565).
- There is a reduced filing program for certain limited partnerships.
Limited partnerships that meet all of the following requirements qualify for the reduced filing program:
- Registered in California;
- Not doing business in California; and
- Do not have California source income.
Under this program, a limited partnership’s filing requirement is satisfied by:
- Completing a Form 565 with all supplemental schedules;
- Paying the annual tax of $800 by the original return filing due date;
- Completing and attaching California Schedule K-1 (565) only for partners with California addresses;
- Writing ''SB 1106 Filing'' in red on top of the front page of Form 565; and
- Entering the total number of partners (including partners with California addresses) in Question J, Side 2, of Form 565.
- When is Form 565 due?
Form 565 is due on the 15th day of the fourth month after the close of the year. If the due date falls on a Saturday, Sunday, or legal holiday, the filing date is the next business day.
- Short accounting period (15 days or less)
California does not require a new limited partnership with a short accounting period of 15 days or less during their initial year to file or pay the annual tax for the year. In order to qualify for this treatment, the limited partnership cannot do business during that time and must have registered with California Secretary of State on or after the following days of the month they choose as their income year ending:
|Month of Registration with the Secretary of State and Taxable Year Ending||Day of the Month|
|January, March, May, July, August, October and December (31 day month)||17th or after|
|April, June, September and November (30 day month)||16th or after|
|February-28 day month
February-29 day month
|14th or after
15th or after
Automatic Six-Month Extension to File:
California grants an automatic six month extension beyond the return due date to file Form 565. A return filed after the extended due date is treated as delinquent, with penalties computed from the original due date.
Important: An extension to file is not an extension to pay. Tax is due on or before the original due date regardless of an extension to file.
To avoid penalties, the limited partnership must pay the annual tax by the original return due date. The limited partnership should submit Form 3538, Payment Voucher for Automatic Extension for Limited Partnerships, LLPs and REMICs with their payment.
- Does California treat small partnerships the same way as federal?
No, California does not conform to the federal small partnership provisions. The federal provisions allow partnerships with 10 or fewer partners (all partners must be domestic, individual partners) to avoid being treated as a partnership for tax purposes. As a result, these partnerships do not file federal partnership returns and are not subject to federal return filing penalties.
For California, these partnerships are treated like all other partnerships and must file partnership returns. They are subject to all California partnership penalties.
- What Is The Limited Partnership Annual Tax?
The limited partnership annual tax is $800. To be subject to the tax, the limited partnership must for at least one day during the year be:
- Doing business in California, and/or
- Registered with the California Secretary of State,
Doing Business: is defined as actively engaging in any transaction for the purpose of financial gain or profit.
The annual tax must be paid by the original return due date of the partnership return.
- What Is an Investment Club?
Certain partnerships are allowed to make an election to be excluded from the partnership provisions. These partnerships are often referred to as "investment clubs" because, in order to qualify, they generally have investment activities. They cannot operate a trade or business.
Caution: Investment clubs and investment partnerships are not the same. For more information about investment partnerships, please see the instructions for form 565.
Limited partnership annual tax: Limited partnerships may qualify and make an election under the investment club provisions. However, such an election does not exempt them from the limited partnership annual tax.
Limited partnerships must still file California returns for tax years after making the election. However, they only need to complete the entity information and pay any amounts due.
General Limited Partnership Information
- Nonresident Withholding Partnership Guidelines (Publication 1017 - State)
- Partnerships (Publication 541 - Federal)
- Instructions to Partnership Return of Income (Form 565 - State)
Doing Business in and outside of California
- Application and Interpretation of Public Law 86-272 (Publication 1050 - State)
- Guidelines for Corporations Filing a Combined Report (Publication 1061 - State) - This publication can be used by multistate partnerships
- Apportionment and Allocation of Income (Schedule R - State)