Suppose you are a minority interest owner in a partnership (less than 50%) and the majority owners decide to convert to a limited liability company (LLC) despite your disagreement to convert. Are you now responsible as an LLC member?
If a single minority interest partner did not approve the conversion of a partnership into an LLC, there is a possibility that the conversion was invalid. In such case a new operating agreement may be challenged as unenforceable and the prior agreements between the partners about distributions might still be enforceable.
If the partnership was a limited partnership, California law states that all general partners must approve the plan of conversion and a majority in interest of the limited partners must also approve. If the partnership was a general partnership, California law states that the percentage of partners’ interest required to approve a plan of conversion is as set forth in the governing documents or, if the documents are silent on that point, all partners must approve the plan of conversion. If a conversion was approved by the required partners’ interests, then all partners are subject to the plan of conversion and subject to any incidental agreements entered into as a result of such plan, such as an operating agreement, that provide for how distributions are to be handled by the LLC.
This discussion is not legal advice, a solicitation of you as a client, nor the engaging in the practice of law in any jurisdiction. This discussion is merely for information/education and should not be relied upon for legal advice by anyone because the facts discussed may be different from your own situation. If you need legal advice, consult a qualified attorney. For more information please visit my website at www.palacioslawoffice.com.