In Northern California, and especially in Silicon Valley, it has become more and more common for a startup business to be organized as a Limited Liability Corporation. The LLC format provides simplicity and flow-through tax treatment, as well as fairly easy future conversion to a corporate form. Such companies are normally cash poor but have a pristine capital structure, permitting them to offer ownership rights to their workers. But if a worker is a partner, can that worker also be considered an employee for tax purposes?
Many business and tax lawyers have long assumed that a partnership’s activities are imputed to all of its partners in determining whether the partners are engaged in business activities within the State of California.