Can someone change their business structure after starting a company?

On Behalf of | Jun 13, 2023 | Business & Commercial Law

The business structure that someone chooses when launching a company influences everything from what paperwork they have to file to how their enterprise is taxed. People often spend some time considering their business model and plans for the organization before they first start a company. Some people dream big from the very start. They may pitch the concept to others to bring on partners or put together a board of directors for a corporation. Others prefer to begin small.

Everything from the type of business model that they use to the funding that they require may impact the business structure that an entrepreneur chooses. Occasionally, after starting a company and having some experience operating it, an entrepreneur will realize they need to adjust their business model. Maybe they need to bring in a partner to help them run the company, or perhaps they would like to upgrade a sole proprietorship that started small to a more formal entity that will give them more legal protection.

New paperwork can lead to a new business model and type

It isn’t necessary to start from scratch if a business’s development makes its current type seem like the wrong choice. In many cases, those operating an existing business will have the option of adjusting the legal form of the company. This process will likely involve filing paperwork with the state. It may also be necessary to revise the business plan or other documents related to the daily operations of the company.

Numerous other elements of business management may require review and revision after the decision to change the business type. It may be necessary to retain additional insurance in some cases, for example. Given that there may be financial and tax implications for those changes, it is often important to consult with someone familiar with business law and possibly also a tax specialist when making major changes to the structure of an existing company.

Taking the appropriate formal steps at the right time – and also making the necessary adjustments to business finances, operations and documentation – will be of the utmost importance for a smooth transition when changing an existing business from one type of entity to a different business structure. As a result, seeking legal guidance proactively is usually a good idea.