Every business is set up as specific type of legal entity, like a partnership, corporation, or sole proprietorship. Occasionally, the nature of a business will change, necessitating some organizational modifications. Every business owner needs to know when and how to convert a company’s business structure.
Reasons to Change Business Structure
Business owners expend time, effort, and money building their company as a certain entity. Why, then, might they want the business structure to change?
- Changes in ownership. Adding or losing partners might prompt the company to consider altering its business entity status.
- Going public. If a company wants to sell shares, the first step may be to convert to a different type of entity.
- Looking to lower tax rates. A dramatic change in a company’s income may send owners looking for ways to lower taxes.
- Concerned about liability. Perhaps a business owner finds that company ownership has increased their personal liability exposure. Other entity types might offer greater protection.
- Adding employees. A family-owned or mom-and-pop sole proprietorship might succeed so well it needs to hire employees. The owners will want to make sure they use a business structure that protects them as much as possible.
How to Change Business Structure
Engaging the services of a business attorney is a good first step. An experienced attorney will know how the laws affect the owner and the business, and can provide expert advice on which entity best suits the company’s needs.
Depending on the entity chosen, the owner may need to have new organizational documents drawn up. For example, if the company is moving from sole proprietorship to a corporation, the owner will need corporate bylaws and articles of incorporation. If the company has a new structure, it likely needs a new name. Documents registering the new company name will need to be filed.
Other state and federal documents may be required so that the new company is properly registered. The company may even need to obtain a new Employer Identification Number and file a new DBA.
Companies with more than one owner will need to address potential concerns and disagreements pertaining to the change. And if shareholders are involved, their approval may be required.
Deciding whether your company needs to convert to a new structure or not can be complicated. The experienced attorneys at Virtus Law have what it takes to analyze business situations and present viable options. Please contact us by calling 612.888.1000 or emailing us at info@virtuslaw.com. Our main office is located in Minneapolis, with other offices located in Edina, Mendota Heights, and Red Wing.
