How do I legally convert my existing California sole proprietorship into an LLC?

To convert your California sole proprietorship into an LLC, you must form a new LLC and formally transfer the assets and operations of your old business into it. California law does not provide a direct statutory "conversion" process for this change. Here is a step-by-step guide to the process: Step 1: Choose and Reserve an LLC Name Select a name for your new LLC. It must end with "Limited Liability Company," "LLC," or "L.L.C." and be distinguishable from other business names on record. Check for name availability and optionally reserve it for 60 days using the California Secretary of State's bizfileOnline portal. Step 2: File Articles of Organization File Form LLC-1, Articles of Organization, with the California Secretary of State. You can file online for the fastest processing. This form officially creates your LLC. You will need to name a registered agent for service of process—a person or company designated to receive official legal and state correspondence. Step 3: Create an Operating Agreement Although not filed with the state, you must create an Operating Agreement. This internal document outlines the LLC's management structure and operational rules. For a single-member LLC, this agreement establishes the business as a separate entity from you personally. Step 4: Obtain a New Employer Identification Number (EIN) Your new LLC is a separate legal and tax entity, so you must obtain a new EIN from the IRS. You can apply for one for free on the IRS website. This is required for opening bank accounts and filing taxes for the LLC. Step 5: Transfer Assets and Contracts Formally transfer your sole proprietorship's assets, like bank funds, equipment, and inventory, to the new LLC. Open a new business bank account under the LLC's name and EIN. You must also update vendor accounts, client contracts, and business licenses to reflect the new LLC name. Step 6: Address Fictitious Business Names (FBN) If your sole proprietorship used an FBN (or "DBA"), file a statement of abandonment for it with your county clerk's office. If your new LLC will operate under a name different from its legal name, you must file a new FBN for the LLC. Step 7: File a Statement of Information Within 90 days of filing your Articles of Organization, you must file a Statement of Information (Form LLC-12) with the Secretary of State. This is then required every two years. Important Considerations: Remember to pay the annual $800 California LLC franchise tax to the Franchise Tax Board, which is due shortly after formation and every year thereafter. Keep your personal and business finances strictly separate to maintain liability protection. Note: This process establishes a new business entity. Debts from the sole proprietorship do not automatically transfer; you must handle them appropriately. The transfer of assets may have tax consequences. This is general information and does not constitute legal advice. For complex situations, you should consult with a qualified California attorney and a tax advisor to ensure a smooth transition.