|FORTUNE Small Business:|
Changing an LLC into an LLP
The process varies by state. Here's how to do it in Illinois.
(FORTUNE Small Business) -- Dear FSB: Not too long ago, my friends and I turned our partnership into an LLC. A year later, we no longer see the need for the LLC and would like to change it back to a Limited Liability Partnership. How do we do that?
- Javier Arreguin, Chicago, Ill.
Dear Javier: The mechanics of how you'll change your LLC back into an LLP will depend on the laws of your state.
In some states, you make the change simply by filing a paper with the Secretary of State, says tax attorney Terry Perris of the international firm Squire, Sanders and Dempsey, LLC.
In other states, you may need to first create a new LLP, then merge the old LLC into the new LLP, and designate the LLP as the survivor in the merger, Perris says.
Still other states require a more complex procedure, which involves a formal liquidation of the LLC - but you will need to consult with legal counsel to comply with these requirements, Perris says.
In your particular case, in the state of Illinois you would file form LLC-35.15, or "Articles of Dissolution," with the Illinois Secretary of State to terminate the LLC, says tax attorney Brian Whitlock of Chicago, Ill.-based Blackman Kallick. The filing fee is $100.
Then, to create the LLP, you'd file form LP 201, the "Certificate of Limited Partnership," also with the Illinois Secretary of State, Whitlock says. The filing fee is $150.
There may or may not be any tax consequences to your switch, depending on how your LLC is currently treated by the IRS - namely, whether the LLC is being taxed as a partnership or a corporation.
If your LLC is currently being taxed as a partnership, there should be no federal income tax implications, says Cristina Perez of Coral Gables, Fla.-based accounting firm De La Hoz & Associates.
However, if you elected to have your LLC taxed as a corporation, the switch to the LLP will be regarded as a liquidation or distribution of assets and thus trigger income tax liability, says Whitlock.