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Changing a business’s legal structure could help it to grow

On Behalf of | Feb 10, 2024 | Business Formation |

One of the most important decisions that an entrepreneur makes involves the formation structure of their company. The structure of a business influences everything from how much control an owner has over daily operations to what taxes the business must pay.

Even if someone starting a business devoted many hours to the contemplation of the right structure, they may eventually decide that the current form for the company is not ideal given other complicating factors. For example, someone who started a sole proprietorship may realize that they want more liability protection now that the business has started to earn money.

Sometimes, business owners may need to change the type of business they currently operate without first dissolving the company. Changing the type of business that someone runs could help them bring in new investors or secure the support of individuals who could now serve as board members if they convert a sole proprietorship or closely-held limited liability company (LLC) to a more complex corporate entity.

How can the structure of a business be altered?

The process of changing the type of business that someone runs can be lengthy. The exact requirements of the process depend on what type of business someone initially started, the extent of their current business operations and what their future plans are for the business.

Someone may need to create a more formal business plan and submit additional documents to regulatory authorities. The person updating the type of business they run usually also needs to notify the Internal Revenue Service (IRS) and any other tax authorities with an interest in the company’s finances. It may be necessary to revise contracts with suppliers, service providers and even customers. In some cases, a name change may be a necessary part of changing the type of business someone runs.

Each of these stages can require negotiation and certain types of legal documents. Often, entrepreneurs and executives making major changes to the company they operate require outside assistance. A lawyer can advise someone on what types of documentation the change they proposed may require.

An attorney’s advice could also help someone evaluate whether the change they propose is the best option given their circumstances. Getting the right help when starting or changing a business’s structure can reduce the legwork, research and stress involved in the process for the executive, owner or entrepreneur making that change.