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Converting a sole proprietorship or a partnership to a limited liability company (LLC) is a relatively simple option for protecting your personal assets — without affecting the way your business income is taxed.

Converting to an LLC is enables the partners to avoid personal liability for the debts of the business. Unlike in a general partnership, where each partner has joint liability for the business’s debts, a member in an LLC is responsible only for his contribution to the LLC.

In some states, before a partnership can legally convert to an LLC, the partners must provide community notice via a local newspaper or business publication. Regardless of what state you live in, all partners will have to transfer their identification numbers, licenses, and permits to the new LLC, including:

  • Business license (or tax registration)
  • Any professional licenses or permits
  • Federal employer identification number
  • State employer identification number
  • Sales tax permit

Note: Sole proprietors and partners in states that don’t provide a conversion form must file articles of organization to create an LLC.