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Should you change your company's business type?

When you first started your business, you undoubtedly gave much thought to the type of business entity you wanted to create. Because you were starting out small, you likely did not believe that you needed a business type that involved many complex aspects. After doing your research, you picked an entity that you believed best suited the needs of your company at the time.

Of course, now that your business has been up and running for some time, you may wonder whether your entity still suits those business needs. However, you may also wonder whether changing your business type is possible or necessary. To answer the first question, it is entirely possible to alter your type of entity. As for necessity, many reasons could lead to such a change.

Reasons to change

Depending on what is happening with your company — whether in terms of profit or growth — you may need to change your business entity for one or more of several reasons. Some of those reasons include:

  • Bringing on employees: If your company started off extremely small, you may need to transfer to a different entity if you start hiring employees to help with business endeavors.
  • Liability: If you have a sole proprietorship, you face the brunt of liability in the event that any negative results stem from your company's actions. However, if you change to a limited liability company or corporation, the entirety of the liability no longer falls to you.
  • Changing owners: Any major change within the company could warrant a review of your business type. For instance, if a co-owner decides to leave the business, a complete owner transfer takes place or a new co-owner is brought in, a change in entity type may be wise.
  • Taxation: Most people have concerns when it comes to their taxes, and when you run a company, your tax issues become more complex. With some business types, such as sole proprietorships and LLCs, you may hold personal responsibility for the company taxes, but with a corporation, you hold less of that liability.

These reasons are just a few of the many that could give you pause and make you wonder whether your current entity continues to suit the best interests of your company.

How to change

Just as you likely sought legal assistance when first forming your business entity, if you want to change your business type, you may once again benefit from discussing your options with a knowledgeable business attorney.

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Cain & Associates
508 N Ridgeway Dr.
Cleburne, TX 76033

Local: 817-506-3233
Local: 817-506-7061
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