Changing an LLC into an LLP

Ask FSB

Get small-business intelligence from the experts. Here's a chance for YOU to ask your pressing small-business questions, and FSB editors will help you get answers from the appropriate experts.

Your name:

* Your e-mail address:

* Your city:

* Your state:
Select Outside U.S. Alabama Alaska Arizona Arkansas California Colorado Connecticut Delaware Dist. of Columbia Florida Georgia Hawaii Idaho Illinois Indiana Iowa Kansas Kentucky Louisiana Maine Maryland Massachusetts Michigan Minnesota Mississippi Missouri Montana Nebraska Nevada New Hampshire New Jersey New Mexico New York North Carolina North Dakota Ohio Oklahoma Oregon Pennsylvania Rhode Island South Carolina South Dakota Tennessee Texas Utah Vermont Virginia Washington West Virginia Wisconsin Wyoming

* Your daytime phone #:

* Your questions:

More from FSB

Help wanted for HR firm A CEO and rodeo queen King of the mountain bike

Current Issue

(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.