California Law Firm Entities and Tax

A California law firm can practice as a sole proprietorship, a general partnership, a registered limited liability partnership, or a law corporation registered with the State Bar, but not as a limited liability company. For federal tax, a law corporation is a C corporation unless it elects S status, and partnerships pass income through to the partners. California adds an annual $800 minimum tax on corporations and registered partnerships, plus a 1.5% tax on S corporation income.

The entity decides who pays tax, at what rate, and which filings keep the firm in good standing. Choosing and maintaining that structure is the first question in Kathryn Meyer's work on tax planning for law firms.

How a California firm chooses and sets up its entity, step by step

Rule out the LLC. California's LLC statute says nothing in it permits a domestic or foreign limited liability company "to render professional services" in the state (Corp. Code 17701.04(e)). The State Bar adds that it does not certify an LLC within California for the practice of law, and that "LLC" is not an acceptable ending for a law corporation's name.
Decide how much liability protection you need. The State Bar describes its registered limited liability partnership program as letting partners limit their vicarious liability for the acts of their partners and employees. A law corporation is the other route.
Form the entity with the Secretary of State. A law corporation files articles of incorporation. A registered limited liability partnership is defined in Corp. Code 16101 as a partnership registered under Corp. Code 16953 that is licensed to engage in, among other professions, "the practice of law."
Register with the State Bar. Under Business and Professions Code 6160, a law corporation is a corporation registered with the State Bar that holds a currently effective certificate of registration; only then is it entitled to practice law. The application includes certified articles, bylaws, and the names of officers, directors and shareholders (B&P 6161). Registered LLPs apply through a separate State Bar program.
Pick the federal tax treatment. A corporation that does nothing more is taxed as a C corporation. To be taxed as an S corporation it files Form 2553 with the IRS, a step the firm's post Tax-Smart Lawyering walks through. Partnerships, including LLPs, are taxed as partnerships.
Put the recurring dates on the calendar. Each year brings a California return, the minimum or annual tax, a Statement of Information with the Secretary of State, and a State Bar renewal for law corporations and LLPs.

Each structure side by side

The table below compares the structures a California firm might consider. Federal rates are for the entity itself; owners of pass-through entities pay tax on their shares of income on their own returns.

Structure	Allowed for a California law practice?	Federal tax at the entity level	California tax at the entity level	Registration
Sole proprietorship	Yes	None; profit is reported by the owner	None	None as an entity
General partnership	Yes	None (IRC 701)	No annual tax (FTB due dates page)	None as an entity
Registered limited liability partnership	Yes (Corp. Code 16101)	None (IRC 701)	$800 annual tax (R&TC 17948)	Secretary of State and State Bar LLP program
Law corporation, taxed as a C corporation	Yes (B&P 6160)	21% of taxable income (IRC 11)	8.84% of net income, at least $800 (R&TC 23151, 23153)	Secretary of State and State Bar certificate
Law corporation with an S election	Yes (B&P 6160)	None, with limited exceptions (IRC 1363(a))	1.5% of net income, at least $800 (R&TC 23802)	Secretary of State and State Bar certificate
LLC or PLLC	No (Corp. Code 17701.04(e))	Not applicable	Not applicable	The State Bar does not certify LLCs to practice law

Two notes on the table. First, the $800 minimum is a floor: a C corporation pays the larger of 8.84% of its net income or $800, and an S corporation pays the larger of 1.5% or $800. Second, a corporation that incorporates in California is not subject to the minimum franchise tax for its first taxable year (R&TC 23153(f)); that exemption covers the minimum only, not the tax measured by income, and it does not apply to limited liability partnerships.

How the federal and California layers fit together

For a C corporation, federal law taxes profit inside the corporation at 21% and again when it is paid out as a dividend. California adds its own 8.84% corporate franchise tax on net income. Paying the owners salaries reduces corporate profit, but every salary dollar carries payroll tax.

An S corporation is generally not subject to federal income tax at the entity level (IRC 1363(a)). California does not follow that rule in full: R&TC 23802 says the federal provision does not apply and imposes a tax at "1 1/2 percent" on the S corporation's income, plus the $800 minimum. The owners then report their shares of income on their personal returns, and the salary the corporation pays its lawyer-owners must be reasonable; see how much salary a law firm owner should take from an S corporation.

A partnership, including a registered LLP, is not subject to federal income tax as such; the partners are taxed "only in their separate or individual capacities" (IRC 701). In California, a registered LLP owes the annual tax in R&TC 17948, equal to the $800 corporate minimum, for every year it stays registered with the Secretary of State. Because the firm files a partnership return, an IRS examination follows the partnership audit rules; see how partnership audits work under the centralized audit regime.

Both S corporations and partnerships can also consider California's elective tax at the entity level, which can ease the federal cap on deducting state income taxes; the trade-offs are covered in whether a California law firm should elect the pass-through entity elective tax.

What the State Bar requires of law corporations and LLPs

Licensed owners. Except as provided in Corp. Code 13403 and 13406, each director, shareholder and officer of a law corporation must be a licensed person (B&P 6165).
Security for claims. B&P 6171(b) lets the State Bar require a law corporation to maintain security, by insurance or otherwise, for client claims arising from its legal services. The State Bar's current guarantee for law corporations is $50,000 per claim and $100,000 per attorney per calendar year, up to $500,000 per claim and $5,000,000 per calendar year.
Fees. For 2026 the State Bar lists $265 for a law corporation's initial certificate, $106 for the annual renewal and a $117 late penalty. For LLPs, the initial application is $117 for the first two partners plus $58 for each additional partner.
Annual renewal. Both programs require yearly renewal online. The State Bar set August 31, 2026 as the 2026 renewal deadline without a late penalty for law corporations and LLPs, and says firms that missed the 2025 cycle's suspension deadline are subject to suspension.
Name. A law corporation may practice only under the name registered with the Secretary of State and approved by the State Bar, and the name must carry an approved ending such as "A Professional Corporation" or "P.C."

What changes the answer

Profit level. The value of an S election depends on how much profit remains after a reasonable salary; below a certain level the extra compliance can outweigh the payroll tax saved, as the firm's S corporation guide explains with numbers.
Who will own the firm. B&P 6165 limits law corporation shareholders, directors and officers to licensed persons, subject to the Corporations Code exceptions; a firm planning nonlawyer ownership cannot use the law corporation form for that purpose.
Number of lawyers and liability. A solo lawyer usually compares a sole proprietorship with a law corporation; two or more lawyers can also consider a registered LLP, which the State Bar describes as limiting vicarious liability.
The firm's first year. R&TC 23153(f) removes the minimum franchise tax for a corporation's first taxable year; a registered LLP has no such exemption in the current statute, and R&TC 17948(e)(2) sets a $400 first-year amount only for taxable years 2027 through 2029.
Timing of the S election. An S election has deadlines; if one was missed, see whether a firm can still elect after missing the deadline.
Interaction with other deductions. The entity type also affects how owners figure the qualified business income deduction; see whether a lawyer can take the 20% qualified business income deduction.
Standing with the state. Unpaid California tax or unfiled returns can lead to suspension of a corporation's powers under R&TC 23301 and 23301.5.

For example: two lawyers forming a firm

For example, two California lawyers open a firm together and expect $200,000 of net income after paying themselves salaries. They cannot form an LLC, so they compare a registered LLP with a law corporation. As an LLP, the firm would owe the $800 annual tax under R&TC 17948 each year and pass all income through to the partners. As a law corporation taxed as a C corporation, the corporation would owe $42,000 in federal tax (21%) and $17,680 in California franchise tax (8.84%) on that $200,000, with a second layer of tax on any dividends. With an S election instead, there would generally be no federal tax at the entity level and California's tax would be $3,000 (1.5% of $200,000), which is more than the $800 minimum. In the corporation's first taxable year, the $800 minimum would not apply, but the 1.5% tax on income still would. They also budget for the State Bar's $265 initial certificate and the annual renewal. This is a hypothetical, not a real case.

Common mistakes in choosing a California law firm entity

Forming an LLC or PLLC for a California practice. Corp. Code 17701.04(e) bars LLCs, domestic or foreign, from rendering professional services in California, and the State Bar will not certify one.
Filing articles and stopping there. A corporation is a law corporation only while it holds a currently effective State Bar certificate (B&P 6160).
Assuming an S election means no California entity tax. R&TC 23802 keeps the 1.5% tax and the $800 minimum.
Treating an LLP as free of the $800. R&TC 17948 applies the annual tax to every registered LLP until it files a notice of cessation, withdraws or is wound up.
Missing the renewals that keep the entity alive. The State Bar renewal and the Secretary of State's Statement of Information are separate from the tax return, and missing them can lead to suspension.
Letting a nonlawyer hold shares. B&P 6165 limits who may be a shareholder, director or officer.

What to do this week

Look up your entity on the Secretary of State's business search and confirm its status and type.
Log in to the State Bar's Agency Billing system and confirm your law corporation or LLP certificate is current and the 2026 renewal is filed.
Check your federal classification: find the IRS letter accepting any Form 2553, or confirm the firm files as a partnership.
Confirm with your preparer that the California return, the $800 minimum or annual tax, and any 1.5% S corporation tax were paid on time.
List who owns shares or partnership interests and confirm each is a licensed person where the law requires it.
If any answer is unclear, book a review such as the Annual Tax Health Checkup, which includes an entity status check with your state.

Frequently asked questions

Can a California lawyer practice through a PLLC formed in another state?

Not in California. Corp. Code 17701.04(e) covers both domestic and foreign limited liability companies, so an out-of-state LLC cannot render professional services in California either.

Is an S corporation a separate kind of entity?

No. It is a federal tax election made by a corporation, here a law corporation, by filing Form 2553. California then taxes the S corporation's income at 1.5% under R&TC 23802.

Does a registered LLP protect a lawyer from every claim?

The State Bar describes the LLP program as allowing partners to limit their vicarious liability for the acts of their partners and employees. It does not describe protection for a lawyer's own work, so malpractice coverage still matters.

Does a new law corporation pay the $800 in its first year?

R&TC 23153(f) says a corporation that incorporates or qualifies in California on or after January 1, 2000 is not subject to the minimum franchise tax for its first taxable year. Tax measured by income, such as the 1.5% S corporation tax, still applies.

Can a law corporation change from a C corporation to an S corporation later?

Yes. The election is made on Form 2553, and its timing rules are covered in the firm's Tax-Smart Lawyering post. A firm that missed the deadline may be able to request relief, as explained in the firm's page on late elections.

What happens if the firm's California powers are suspended?

A suspended corporation loses its rights, powers and privileges until it is revived, which can include the ability to defend itself in court. See what happens if California suspends your law corporation.

Does the choice of entity matter when the firm is sold?

Yes. Selling a corporation's stock, a partnership interest or the firm's assets each has different tax results; see how the sale of a law practice is taxed.

Setting up the right structure

The right entity is the one that fits your practice, your profit and the State Bar's rules, and stays in good standing every year. Kathryn Meyer spent more than two decades in the IRS Office of Chief Counsel and now helps law firms review their structure, elections and state standing, often through the Quarterly Tax Health Checkup. To talk about your firm, contact the firm or call (571) 560-8674.

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