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3 reasons you may need to change your business structure

On Behalf of | Apr 4, 2022 | Business Law

There are numerous ways to start a business. You might negotiate a partnership agreement with an outside investor for a company that you will run on a daily basis. You might form a limited liability corporation (LLC) for a start-up idea, or you may simply operate a sole proprietorship.

Many entrepreneurs put a lot of consideration into the kind of business that they start. The form they choose will be a reflection of their business model and their current circumstances. Eventually, business owners may determine that their existing structure is not adequate or optimal for their circumstances.

In situations like the three listed below, business owners may need to consider changing the form of their business.

To add or remove a partner

Have you encountered operational challenges with a sole proprietorship that require expert help? Bringing in a partner who has run a similar, successful business could be the solution you need. You may also want to add a partner to the business as you start planning for succession and your eventual retirement.

Conversely, you may want to change the company’s structure when a partner wants to move on from the company or a conflict forces the two of you to end your business relationship.

To change what the business does

Did you start out running a small catering business and now want to add a physical location with sit-down dining? Perhaps you originally offered repair services for people’s electronics but have started creating bespoke gaming computers for local enthusiasts.

If what your company does or how you earn money will change, then you may need to change the structure of your business to better protect you based on the risks associated with your new business model.

To address upcoming expansion

Do you intend to add new departments to your existing offices or add new locations because demand for your products has grown so much? A sole proprietorship or LLC can be a good starting point for an entrepreneur but may not offer the kind of protection necessary for a medium-sized business with dozens of employees and multiple locations.

Changing your business structure to protect yourself from liability and optimize the tax benefits available for your company can be a smart choice. Knowing when to make a change and what steps to take will protect you from business law mistakes that could leave you or your company vulnerable.