The structure of a company is crucial to the long-term success and protection of the organization itself and the people who invest in the company. Business owners and entrepreneurs often carefully consider the various options before settling on a specific structure for the company they intend to start.
Occasionally, parties who have invested in a business recognize that the current structure may not be the best option. For example, a rapidly growing business may have outgrown the protections of sole proprietorship. Those hoping to take on investors may recognize that a limited liability company (LLC) must evolve into a corporation for the company to begin offering stock publicly.
There are several steps necessary to formally change the structure of an existing company.
Evaluate the decision carefully
Before making any permanent changes to the company, looking over current operations and future plans for the business can help validate whether changing the entity type for the company is necessary or not. Additionally, business owners may need to review the different options available to them.
For example, there are a number of different corporate structures available depending on the organization’s goals. Updating the business plan and ensuring the new entity type is the best option available are critical steps to take before moving forward with the actual legal process.
File appropriate paperwork
Typically, there are a number of formal document filings required when adjusting the business type of an existing company. Those filings may include paperwork submitted to the state and the IRS. The previous form of the business and the new entity type determine what sorts of documentation are necessary. There may be fees to file as well.
Communicate with interested parties
Frequently, a change in business type may require an adjustment of the company’s name as well. As the name change process begins, leadership within the organization may need to communicate with various parties about the change underway.
Landlords, suppliers and service providers, as well as employees, typically need to know that the name of the company that they work with may soon change. In some cases, negotiating completely new contracts may be necessary.
Everything from tax obligations to insurance requirements can change with the structure of a business. Those contemplating a major shift in organizational structure may need help managing the various processes involved. Getting support for questions about the potential implications of changing a business’s structure can help reduce the risk of legal and financial challenges in the future. Leaders may be able to outsource much of the minutiae involved in the process and focus on managing the business instead of on paperwork.