Converting to (or From) an LLC

Converting to (or From) a Limited Partnership to LLC

Businesses can expand and change at a rapid pace. The structure that fit at the time you started your business may no longer fit. If your business is expanding at a fast pace or needs capital it may be time to change the structure. You may be deciding to switch from a limited partnership to an LLC. The process of changing from one entity to another is called a conversion.

A conversion is when a business changes from let’s say a Limited Partnership to LLC or vice versa. When you decide to convert your business all assets, debts, liabilities, and properties vest in the converted entity. The rules concerning converting your business from one entity to another vary from state-to-state. Talk to a business lawyer to make sure you follow all laws concerning conversion in your state. There are statutes governing both your current business entity and statutes governing the entity that it will become. It is important to find out what steps you have to take to have a successful conversion.

Steps for Conversion

If you are converting your business from an LLC to another entity having an approved plan of conversion is necessary. This plan must contain the terms and conditions of the conversion. It also has to contain the manner and basis of converting the membership interests into interests of the entity it will be converted to. Members of the LLC must approve of the plan. The vote for approval is usually set in the operating agreement of the LLC. If that is not the case the state formation statute governs.

It is also wise to work with a tax professional when deciding to convert your business. Converting from one entity to another can have tax-ramifications. There may be long term tax consequences and short term. A tax professional can minimize risks. Once your plan of conversion has been approved it is time to file the articles of conversion. When converting from one entity to another filing the appropriate documents for that business type is a must. If your company has registered to do business outside the state it was formed then it is important to file the necessary documents to each of those states that you are converting your business.

If you want to convert to an LLC the process is similar. All owners of the LLC must approve the plan of conversion. Then the converting business must files articles of conversion. The appropriate formation documents must be filed for the new entity. There are similar procedures for each state that your business registered to do business.

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