Minority Owner Did Not Agree to Convert to a Limited Liability Company

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.

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About Elio Palacios, Jr.

Attorney Elio Palacios, Jr., represents individuals, corporations, entrepreneurs, small businesses, startups and early stage businesses, physicians, dentists, and healthcare businesses in corporate, business and commercial transactions and litigation. He also counsels employers and individuals on visa, immigration and naturalization matters. Visit www.PalaciosLawOffice.com to learn more.
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