How To Change Business Structure

Change Business Structure

Your company’s original business structure may no longer be optimal you can change it.

  • Your company’s business structure is one of the most important choices you’ll ever make. Nevertheless, you may business change the structure at any moment.
  • As part of selecting the optimal business structure, most owners consider liability protection and tax benefits.
  • Typical business structures are corporations, partnerships, sole proprietorships, cooperatives, and limited liability companies.

Your company’s structure is the organization’s skeleton. It governs your management, responsibility, and taxes and sets the pace for your business endeavors. However, the first structure you choose does not need to be more permanent. “As your business changes, you may realize that your current structure no longer meets your needs,” said Brittany Nevels, branding and business consultant and owner of BE Distinct Designs.

“A business that began as a sole proprietorship might incorporate a spouse, hire a staff, or produce products or services in a capacity requiring more security. Similarly, a larger company that discovers it has to shrink may conclude that an LLC is a better fit. Provided your first strategy is not functioning, you may choose another one if you are willing to endure the treatment. Here is how to change your business structure.

1. Check State Regulations

Nevels stated that you must contact the secretary of state in the state where your company is registered since various nations demand different procedures and documentation.

“You may also need to make that the change in structure does not need an additional license or insurance,” she noted, which will also change according to the nature and location of the company. Some counties may need additional documents beyond what the state requires.”

Samuel M. Bregman, a business attorney and founding partner of The Law Offices of Samuel M. Bregman, stated that you might need to amend your articles of incorporation and bylaws, file a DBA (“doing business as”) with your company’s government, register for an Employer Identification Number, and notify your lender of any recorded changes. Additionally, determine whether the new arrangement will incur filing fees, additional forms, or documentation requirements.

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“In most countries, a limited liability company is required to file an operating agreement with the government that specifies in full how the company will be governed,” said Bregman. “The creation of the working agreement typically requires a considerable lot of effort and may incur several thousand dollars in extra-legal expenses.”

2. Ask Yourself These Queries

Nevels suggested asking yourself the following questions based on the product or service offered by your company.

  • Will you need insurance?
  • Do suppliers need extra liability coverage?
  • Does your state have sales tax?
  • Will your product or service be subject to tax?
  • Are quarterly or yearly tax payments required?
  • What kind of product or service will you be providing?
  • Will you communicate directly with your customers?
  • Are you more likely to be sued if anything goes wrong?
  • How much capital do you have available for your first startup?

3. Consider Options

Bregman stated that it is important to comprehend all legal structure options for your company.

He stated, “It is practically hard for a layman to figure this out on their own.” “It is essential to talk and plan with an experienced small business attorney, and maybe also your accountant.”

Structures For Business Structure Types

These will be the most common forms of business structures:

Sole Proprietorship: One person is responsible for the obligations and earnings of the whole enterprise.

Limited Liability Company (LLC): The organizers of a limited liability company (LLC) have fewer duties while enjoying more freedom and tax benefits.

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Businesses: The organization is distinct from its owners. There are several sorts, including C corporations, S corporations, B corporations, close corporations, and non-profit organizations.

Cooperative: This kind of business is owned by the people it serves.

Nevels stated that sole proprietorships and limited liability corporations would be the most popular choices for smaller businesses, but they are not the only ones. “Some enterprises may realize that a comprehensive company will be advantageous. Because businesses are taxed differently, many organizations feel that this arrangement provides greater tax savings. Nevels said that if your company offers a service (such as event photography or planning) and works with all consumers, an LLC may be the best choice to protect you from being sued as a person.

She stated, “There are a few exceptions, but the LLC generally prohibits the person from collecting your assets.” “Instead, they sue the company alone… It is important to keep the company finances separate from personal funds in LLCs and businesses.

If you fail to do so, you risk breaching the corporate veil and putting yourself and your company in jeopardy.” According to the Small Business Association, institutions, non-profit corporations, limited liability partnerships, and close corporations are additional small business structures.

  • A union is established when a group has a common interest or activity.
  • A non-profit company is a legal body that does not provide services for financial gain. Instead, charitable organizations should seek a part via their activities. Many are registered as non-profit organizations.
  • A limited liability partnership is formed similarly to a traditional partnership. The primary distinction is that neither partner is responsible for the irresponsible behavior of the other.
  • Close corporations have the same organizational structure as the B-core. On the other hand, close corporations have fewer severe regulations and may be administered by a group of shareholders without a board of directors.

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