Are business structures set in stone?
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Are business structures set in stone?

On Behalf of | Nov 11, 2022 | Business Law

Although you put considerable thought into how your registered or formed your business, you have the option to change your business structure. By changing your business entity, you could attract new investors or give yourself a considerable financial advantage by changing your business taxes.

The following situations could influence you to change your business entity.

Tax liability concerns

If an individual wants to change their tax liability, a change from a pass-through entity to a corporation is in order. With a pass-through entity, the taxes due come through the personal tax return of the business owners. Entities in this category include LLCs, sole proprietorships and partnerships. A corporation filing will typically lower the liability while still preserving income for the organization.

Significant company growth

Owners often create a business structure that works for the initial size and scope of their business. Over time, as the business grows and revenue and employee number increase, the personal liabilities of the business owner also increase. By changing to a different business structure, the owners can achieve better personal liability protection. Disgruntled or injured employees could file lawsuits, while big projects could get off-track from errors, omission or other legal concerns.

Financing needs

For a company in need of funding, the structure may impact a bank’s willingness to lend it money. A lender will often request a formal business structure and evaluate the risk of lending to the organization. Formally filing a structure helps to legitimize the business and lends credibility to the organization.

Selecting a business entity takes into account several factors. As these factors change, so could the need to change your business entity.

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