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FORTUNE Small Business:

Changing an LLC into an LLP

The process varies by state. Here's how to do it in Illinois.

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(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.

Whitlock advises consulting a tax professional regarding your specific circumstances. Trying to navigate this on your own "can be similar to practicing brain surgery on yourself," in his opinion.  To top of page

Have you recently changed the status of your business? What are your state requirements? Fill us in.

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