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3 reasons to change the legal structure of your business

On Behalf of | Feb 4, 2022 | Business law |

When you decide to start a business, choosing its formal structure will be one of the most important decisions you make. Based on the possible risks and the way you want to do business, you might create a partnership, an LLC or even a nonprofit corporation.

Eventually, as your business changes and evolves, you may find that the structure you initially chose no longer seems like the best fit for your company. What are some of the situations that might lead to an entrepreneur changing the type of business that they run?

When you connect with someone who can help

Maybe it has taken longer than you anticipated to start generating profit, and you desperately need an influx of cash from an investor. Perhaps you have achieved unexpected success and now find yourself struggling to handle everything on your own as a sole proprietor.

When you need something that you cannot directly provide to the business, restructuring the company to add a board of directors or bring in a partner could be a good decision for the future of the company.

When your focus or scope changes significantly

If you started out as a small, local operation and now intend to expand across the state, you may want the protection of an LLC or another corporate form to minimize your personal risk. On the other hand, if your business was originally only providing consulting services and will now offer hands-on IT support, the new business model you intended to employ may necessitate that you change the structure of the business for your protection and the longevity of the company.

When you realize you have missed out on potential benefits

There are perks to using different formats for a business in different scenarios. For example, there might be grants available for partnerships and sole proprietorships in your industry that don’t accept applications from corporations or LLCs. Aternatively, a more structured and formal organizational form good could help someone hoping to bring in investors or build their company to a point where it becomes a publicly-traded entity.

Growth, contraction and changes to the way you do business are all good reasons to review and possibly update your business structure as well. Thinking about your company’s changing needs can help you make legal decisions that protect you and benefit the business.