Legal Question in Business Law in California

This is a new LLC which means that everything will need to be converted to the LLC (i.e., new bank account, new licenses, contracts, etc.)

There are no legal provisions allowing conversion, merger, etc. of a sole proprietorship into another business organization or structure. Therefore, you will have to transfer your sole proprietorship business into an LLC (either one newly formed for the purpose, or al already-existing LLC) stick-by-stick. This does not mean starting over from scratch, but neither is it terribly simple.

The first step is to identify or create the target LLC. If you need or want a new one, form it by filling out and filing a Secretary of State Form LLC-1. Look at www.ss.ca.gov for the form and instructions.

Then, "sell" the business to the LLC. Use a bill of sale and get paid (cashed out). Of course, the LLC will pretty much be paying for your business with your money. The key thing here is that you must recognize all along that the LLC is not you, and you are not the LLC, even if you own 100% of it. Your separate identites and separate pocketbooks must be recognized. When you put money into the LLC to capitalize it, write a personal check to the LLC noted as "investment in LLC." Then, write an LLC check to yourself, labeled "purchase of business from John Doe, proprietor." That way, you'll own the LLC and the LLC will own the formerly sole-proprietorship business.

As Mr. Jefferson says, your new LLC will need a taxpayer ID number, a bank account, a reseller's permit (if appropriate), a business license, and so forth. If you have a lease for business premises, you need to discuss its transfer to the LLC with your landlord. If you have employees, they need to be hired by the LLC ........ and on and on. Still, its a worth while exercise for many growing businesses.