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Is changing your corporate structure post-formation an option?

On Behalf of | Aug 30, 2021 | Business law |

Many individuals who go into business for themselves have the weight of the world on their shoulders. They must come up with the funding to get their company off the ground and wear many hats regarding their roles in their business.

Business owners often find themselves having very little time to research different corporate structure options. The formation option that they may choose when first launching their company may not be best as the company grows or leadership dynamics change. Do you ever sometimes wonder if changing your businesses’ corporate structure is an option available to you?

What are some of the more popular corporate structures?

Sole proprietorships are often the go-to formation for first-time entrepreneurs. They choose this structure because it’s the easiest to form, and owners can control their operations. The downside is that a business owner assumes full liability for their company’s operations. Finances for the business often run through the same account.

Partnerships are popular among sole proprietors looking to go into business with an additional owner. Partners still assume responsibility for all debts and decisions their company makes.

Business owners can keep personal and professional finances separate from corporations through limited liability (LLC), S or C structures. An LLC shields a business owner from being held personally liable for the company’s decisions. S corporations have a “pass-through” structure. This means that federal and state tax authorities only tax shareholder-level net profits.

Changing your business formation

One of the first steps that you’ll need to take to change from one business formation to another is to file an article of amendment. This is the same document that you’d file if you were planning to update the names or address of directors, members, offices or registered agents. It’s also the same form you’d file if you were reporting a different number of authorized shares or your business’ activities.

Changing a business structure to another isn’t always straightforward. A need may arise for you to file Articles of Conversion and Articles of Incorporation before your new entity will be legally recognized. You may want to apprise yourself of the tax implications associated with making entity changes.