When you started your business you did what you could to make sure that its form and structure met your needs at the time. You may have decided on a sole proprietorship if you were going into business for yourself. Or you may have forming an LLC to better protect your personal assets.
You and your business have gotten along quite well since then. Your customer or client base has grown steadily and so has your income. But now your business growth strategy and goals have changed and your existing business structure may no longer meet your business and personal needs.
Reasons to Change Company Structure
Most small businesses change their structure for one or more of the following five reasons:
- Liability protection. If you began as a sole proprietorship, it may be time to protect your personal assets by forming a corporation or becoming an LLC.
- Employees. If you’ve hired employees, your business is now more complex and so are your liability risks. This is another reason for incorporating.
- Going public. You may be thinking about raising capital by going public; i.e., doing an Initial Public Offering (IPO) to sell stock to the public. IPOs generally require that your business be a corporation.
- Change of ownership. If you’re thinking about adding one or more new owners to your business, or if an existing owner is preparing to leave, this may signal a change in business structure.
- Tax advantages. If your business is currently a regular corporation (C Corporation), electing to become an S Corporation will stop your double taxation.
If you’re seriously thinking about changing the structure of your business, consult an experienced business attorney with whom you can discuss in detail your current status and your goals for business growth and expansion. Not only can (s)he advise you of the legal ramifications and advantages and disadvantages of various business structures, but also whether your current or future tax situation is complicated enough that you need to add a knowledgeable tax id application advisor to your team as well.