Those who start businesses often spend quite a bit of time planning. They create a business plan outlining how they intend to operate the company. They look for funding. They file official paperwork starting the business.
The type of business entity that an entrepreneur establishes can affect everything from their personal liability to the taxes they have to pay. The way that a business owner structures their company can influence organizational operations for years to come.
Occasionally, business owners reach the stressful conclusion that they chose the wrong business type. They may want to change form to better optimize personal protection or financial benefits. The following are some of the most common reasons that business owners undertake the effort necessary to change the type of business they run.
A change in the company leadership
Perhaps the company began as a partnership, but one partner is ready to move on to a different business endeavor or wants to accept a lucrative job offer. In a partnership buyout scenario, changing the structure of the business can be an important part of the process.
Other times, a company that began as a sole proprietorship may require the support of other outside parties including investors. They might want to start a partnership with someone providing funding or to convert a business to a corporation so that multiple parties can contribute to the business and have a say in its ongoing operations.
A change in company function
The initial business model for an organization may not have proved successful. The company may struggle to compete in a saturated market or may have initially offered goods and services that no longer have robust demand. When a company significantly alters its purpose, it may be necessary to adjust the business type as well. Doing so can provide better protection for those in leadership positions.
Rebuilding after controversy
There are many types of controversy that can impact a successful business. The company might face lawsuits brought by customers or former employees. There might be tax issues that lead to bad press for the organization.
Controversies related to how the business operates, the goods and services it provides and its compliance with the law can affect what talent the company can acquire and how many consumers decide to patronize the business. Changing the name of the company and the structure of the organization can both be beneficial moves for leaders at organizations trying to rebuild after a controversy.
Changing the form of a business requires filing paperwork with the state, updating business plans and communicating with interested parties. Business owners and executives who obtain support when changing the form of a business are less likely to make mistakes that can complicate the process.