Legal Question in Business Law in California

It isn't really a conversion. You need to form an LLC and transfer the assets into the new company.

Very carefully. A partnership would want to convert to an LLC primarily to obtain the benefits of limited liability. Although forming an LLC is simple (the California Secretary of State has the forms), ensuring that you eliminate personal liability from ongoing business operations, even under the shroud of an LLC, is much more complicated. If not done correctly, and thoroughly, you can still be held personally liable for ongoing business operations. For example, if your customers or vendors think they are still doing business with the general partnership, and not the newly formed LLC, you can be held liable.

In addition to filing Articles of Incorporation with the Secretary of State, you must prepare a written agreement governing the LLC's operations. Similar to a corporation's bylaws, the "operating agreement" governs the management of the LLC, and provides for the various issues important to closely held entities. If you have further questions, you can reach me at [email protected].

There are a couple of options, but the best way will depend on what kind of business the partnership does, and how the partners want to structure the LLC, among other things. There are also tax issues that will impact things, so whatever method you use should be chosen with the input of your tax advisor. In fact tax consequences may drive the method more than legal ones. In either case you will form the LLC and then transfer the business of the partnership into it and dissolve the partnership. The two basic options from there are to sell the assets of the partnership to the LLC and distribute the proceeds to the partners, the proceeds presumbably being shares in the LLC, or to dissolve the partnership, distribute the assets to the partners, and then have them transfer their share of the assets to the LLC as their buy-in. There are other more "creative" methods that are sometimes employed for tax reasons, or due to creditors rights, including Bulk Sales rules in the UCC that may apply, again depending on the nature of the partnership's business.

I can't say the previous answers are wrong, but they omit any reference to a major section of controlling general partnership law. General partnerships in California are governed by the Uniform Partnership Act of 1994, California's version of what is more widely known (in other states) as the Revised Uniform Partnership Act. The Act consists of ten Articles, the ninth of which is entitled "Conversions and Mergers" which provides a statutory road map for turning a general partnership into another kind of business entity, or merging it with another kind of business entity.

Article 9 of the UPA or 1994 is part of the Corporations Code, comprising its sections 16901 to 16917. Section 16917 states "The provisions of this article are not exclusive" and that mergers and conversions can be accomplished by other lawful, authorized processes. Still, I would imagine working within the statutory framework is a better idea that reinventing the wheel, unless the partnership is very well counseled and there are compelling reasons for doing the merger or conversion by another process. Indeed, there probably are special situations where deviating from the statutory blueprint is preferable. For most, however, the risk of error will be minimized by staying within the code, which, by the way, already provides for numerous options and variations.

A final comment is that you ask "how do 'I' convert," etc., causing me to wonder whether the other partners are fully on board. The Act and/or your partnership agreement may require anywhere from a simple majority to unanimous consent to the proposed transaction. See, e.g., CC section 16903(b). If you are the last remaining "partner" who has not dissociated from the partnership (by withdrawal, death, bankruptcy, etc.), under California law the partnership has already ceased to exist - our courts having decided that there cannot, by definition, be a partnership with but one partner (Corporations Code section 16101(9)). This may leave you in kind of a legal limbo, having on the one hand a business that apparently is now your sole proprietorship, but on the other hand, probably, some latent responsibilities under partnership law for winding up its business.

I would dissolve the partneship and draft a new agreement forming the LLC. I believe this is the most cost effective way to do so. Contact me directly.

You don't. You form the new entity, and properly transfer the assets to it, then close the old. Feel free to contact me if serious about getting legal help with all the documentation and filings and notices required.