When you first start a business, choosing its structure will be one of the biggest decisions. The kind of business you intend to operate and the way you finance the company will likely influence the structure that you initially choose.
Many businesses will remain the same for the duration of their existence, but some organizations change their legal structure. The three situations below are all scenarios in which it may benefit the people who own or operate a business to change the form used for the company.
After a merger or an acquisition
When one small business acquires another company or two businesses merge into a much bigger one, a different company structure may be necessary to manage the increased resources and liability of the bigger resulting company. Changing from an LLC to a more involved corporate structure may be the right choice. Others may want to upgrade from a partnership or sole proprietorship to an LLC.
During or after business bankruptcy
When you have to restructure your company to regain solvency, you may need to make changes to the way you do business. The structure you use can affect everything from the taxes that you pay to the resources and support available to your company. Bankruptcy can be a perfect opportunity to choose a better form for your existing company.
During a period of extended success
A sole proprietorship or partnership might have offered enough protection when you first started your company and had no employees. Now that you have grown and have numerous staff members or do seven figures worth of sales every year, may you may need a more formal structure that provides more protection to you as the owner from potential liability in the future.
Recognizing that you may need to change your business structure can help you optimize your protections as an owner or executive.