search

How to change the structure of your business?

POR Hispanic Entrepreneurs February 24, 2020
Featured image from the article

After you register a company, the moment may come when you wonder if it is possible to change the structure of your business. From Hispanic Entrepreneurs We want you to know the reasons that would lead you to make this modification.

As the business grows, the needs change and, therefore, you will need to adapt to the new conditions with a change in structure. Sometimes you want to limit your liability, decrease paperwork and paperwork, or change the way you pay taxes.

There are many reasons that can lead to this decision. Entity changes are usually from simple organizations to more complex ones. For example, from a single property to a Limited Liability Company (LLC) or from an LLC to a corporation. But, it can also happen in reverse.

In any case, the changes have some complexity, having legal and accounting advice will help you make the best decision. This will help you understand the steps to change the structure of your business.

Why consider a change of structure?

Converting an existing business to another type of entity can be done for multiple reasons. The most frequent are the following.

Increase liability protection

The simplest form of organization is unique properties. For these to work they do not require registration. But, as they begin to grow, homeowners want to limit their liability. This leads them to turn the company into LLC or a corporation, where they get the protection they seek.

Changes of owners and sale of shares

If you are the sole owner of a small business, you know the advantages of having control over it. But, it also means a greater burden of money, unlimited liability and greater difficulty in raising money. So you may want to bring in someone else to share responsibilities with.

READ OUR MAGAZINE HERE

The incorporation of new owners or the departure of current owners generate a process of change in organizations They can lead to a different structure than the one you have.

Also, if you want to sell stocks to attract investors and you have an LLC, you will need to exchange it for a corporation.

Tax considerations

The issue of taxes is the one that most frequently drives structural changes. Whether or not this is the reason, it is important to know the taxes to be paid in Tennessee for each type of business.

When a corporation becomes an LLC or a sole proprietorship, it will likely have to pay a liquidation tax. The way of paying taxes in the new entity will be different. In these types of companies, taxes are reflected in the personal declarations of the owners. While the corporation pays income tax as an entity separate from the owners.

Is it possible to change the structure of your business?

Deciding the type of company that you are going to register is essential for its operation. This will determine aspects such as paperwork or taxes that you must pay. As the business progresses, it is necessary to review whether the structure you chose in principle continues to work or not.

Before making the change, consider what the alternatives are and what it means to function as a different entity. What are the advantages and disadvantages of each one, the procedures that you must do, the permissions to request and what other changes does it imply (the name, for example).

Considerations to take into account

Before making the final decision to change the business structure, study the options you have. As well as the characteristics and responsibilities of the entity to which you want to migrate. Remember that you should even change the way you run the business.

Factors to consider include taxes to pay, liability or if you need new investors. Also the fees you must pay, the procedure to follow and what the operational continuity will be like.

For example, you can take a single partnership to be an LLC, partnership, or corporation. To the incorporated a business in Tennessee in this way you give it legality. You have to take into account the permissions you need and the formats you must deliver. The operating agreements must be created; in the case of corporations also the statutes, designate shareholders, officers, among other requirements.

Name change and licenses

The registration of each entity requires including certain terms in the name of the business. Therefore, changing the structure implies a change in the name. Additionally, local, state and federal authorities must be notified of the modification.

Also, you may need to re-process licenses and permits to continue operating the business.

Other changes you can expect are the introduction of a new DBA name (Doing Business Assign a new Employer Identification Number (EIN).

Once you know that it is possible to change the structure of your business and you decide to do it, you have to notify partners and shareholders if it is the case. Similarly, suppliers, customers, employees, insurance, and business-related banks should know this.

Related Notes: