California at a glance
Partnership law
RUPA (revised)
LLC default split
Equal per-capita
Operating agreement
Required (oral OK)
Community property
Yes
Formation cost
$70
Annual cost
$800 annual franchise tax
California imposes an $800 annual franchise tax on all LLCs, even inactive ones that earn no income. This tax applies from the date of formation and is due every year the LLC exists. California also aggressively asserts jurisdiction over out-of-state LLCs doing business in the state, requiring them to register and pay the franchise tax. An LLC gross receipts fee of $900 to $11,790 applies to LLCs earning over $250,000.
Default partnership rules in California
California adopted RUPA in 1996, replacing the original UPA. Under RUPA, partnerships are treated as separate entities. Profits and losses are shared equally by default, regardless of capital contributions. Each partner has equal rights in management. Partners owe each other fiduciary duties of loyalty and care. The partnership can own property in its own name. California requires general partnerships to file a Statement of Partnership Authority with the Secretary of State, which is unusual among states.
The most important takeaway: profits are split equally by default in California, regardless of capital contributions. If you and a partner start a business and one of you invests $100,000 while the other invests $5,000, you still split profits 50/50 without a written agreement. This is true in every US state, including California.
LLC defaults in California
California follows RULLCA (effective 2014), which defaults to equal per-capita distributions among members regardless of capital contributions. This means a member who contributed $10,000 gets the same share as one who contributed $100,000 unless an operating agreement provides otherwise. California requires LLCs to have an operating agreement, though it does not need to be in writing (oral agreements count, though they are harder to enforce). The $800 annual franchise tax is the most significant ongoing cost and applies regardless of income.
Because California follows RULLCA with equal per-capita defaults, LLC members should pay special attention to their operating agreement. Without one, a member who contributed 90% of the capital gets the same share of profits as a member who contributed 10%. Use our equity calculator to determine a fair split based on actual contributions.
What happens when a partner leaves in California
Under California's RUPA, a partner's dissociation does not dissolve the partnership. The partnership continues and must purchase the departing partner's interest at fair value within 120 days. If the partners cannot agree on the buyout price, either party can file a court action. A wrongfully dissociating partner (one who leaves in breach of the partnership agreement) may have their buyout offset by damages. The partnership can also be judicially dissolved if it becomes impracticable to carry on the business.
A written partnership agreement should still address departure terms specifically, including how the buyout value is calculated, the payment timeline, and any non-compete provisions. While RUPA provides a default framework, the details of a buyout can still lead to disputes if not spelled out in advance. Understanding the concept of dead equity is important for managing these situations. Learn more about how dead equity affects businesses.
Marriage and business equity in California
California is a community property state. Property acquired during marriage is presumed to be community property and is split 50/50 in a divorce. However, income generated by a separately owned business is generally treated as the business owner's separate property in California, which differs from states like Texas. A business started before marriage is separate property, but the community may have a claim if the owner-spouse devoted significant effort to the business during the marriage (known as a Pereira or Van Camp accounting). Founders should consider prenuptial agreements to clearly define business interests.
While California is a community property state, income from a separately owned business is generally treated as separate property. This is more favorable for business owners than states like Texas and Idaho, where business income becomes community property. Still, prenuptial agreements provide additional protection and clarity, especially if the business grows significantly during the marriage.
Formation and cost considerations in California
| Formation cost | $70 |
| Annual/recurring cost | $800 annual franchise tax |
| State income tax | Yes |
| Partnership law | RUPA (revised) — partnership continues after departure |
| LLC default distributions | Equal per-capita (RULLCA) — all members get equal share |
| Operating agreement | Required (oral or written) |
Frequently asked questions
How much is the California LLC franchise tax?
California charges an $800 annual franchise tax on all LLCs, due within the first few months of formation and every year after. This tax applies even if the LLC earns no income or is inactive. LLCs with gross receipts over $250,000 also pay an additional fee ranging from $900 to $11,790. First-year LLCs formed after January 1, 2024 are exempt from the $800 minimum for their first tax year.
Does California require an LLC operating agreement?
Yes, California requires LLCs to have an operating agreement. However, it does not need to be in writing. An oral operating agreement is technically valid, though it is much harder to enforce. For any serious business, a written operating agreement is essential. Without one, California's default rules apply, which split profits equally regardless of capital contributions.
How does community property affect business ownership in California?
California is a community property state, but income from a separately owned business is generally the owner's separate property. A business started before marriage stays separate, though the community may claim some value if the owner devoted significant effort during the marriage. Most founders should get a prenuptial or postnuptial agreement to protect their equity.
Can California tax my LLC if I formed it in another state?
Yes. California aggressively asserts jurisdiction over out-of-state LLCs that do business in California. If your LLC has customers, employees, or property in California, the state may require you to register as a foreign LLC and pay the $800 franchise tax. California defines 'doing business' broadly, and many out-of-state LLCs are surprised to learn they owe California taxes.
Related resources
- Equity calculator: find a fair split for your business
- Does your small business need an equity agreement?
- Equity for small businesses: the complete guide
- Dead equity calculator: how much is yours costing you?
- Slicing Pie calculator
- What is an operating agreement?
- All 50 states: partnership and LLC default rules
Partnership laws in neighboring states
Disclaimer: This page provides general information about California partnership and LLC default rules and is not legal advice. Laws change, and the information here may not reflect the most recent amendments. The formation costs and annual fees listed are approximate and may vary. Consult a qualified attorney licensed in California for advice specific to your situation. Equity Matrix is a software tool for tracking contributions and calculating equity; it does not provide legal services.
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