• September 2019
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Converting an Existing Business Entity to an Alternative Business Structure

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When you first incorporated your company, you made a decision about which legal company structure would likely work best for your unique business situation. Based on your business model and the players involved in founding your company, you made a decision about your company’s structural framework that laid the foundation for its potential liabilities.

Is the company structure you originally chose still the best vehicle for your company? This is a complex question and one you will likely benefit from discussing with legal representation. If the answer is ultimately “no,” it is important to understand that you have options. It is indeed possible to convert your existing business entity into an alternative business structure, depending on the circumstances surrounding your situation.

Choices, Choices, Choices

The choice of any legal structure of a company is a uniquely important one. A business’s structure helps to determine ownership, liabilities and legal relationships that may significantly impact the viability of the affected company. As a result, it is critical that each business is structured in the ways in which make the most sense at any significant point in time.

In general there are several company structures. Businesses are structured as corporations, limited liability companies, partnerships and sole proprietorships. Each of these designations has the ability to either affect or insulate owners from both business-related and personal asset liability. In addition, different company structures result in different kinds of fees, taxes and reporting requirements. The particular benefits and potential liabilities of each choice should generally be explored with your legal representation before you settle on your conversion goals, as every business situation is unique.

Thinking Ahead

When determining which company structure may work best for your company, consider whether you are primarily seeking to simplify your operations or insulate your liability. In general, partnerships and sole proprietorships will simplify your situation, while corporations and LLCs will help to limit personal liability for business-related challenges.

It is worth noting that the United States Small Business Administration recommends weighing the relative importance of five primary considerations when considering business conversion. In addition to liability concerns, the SBA identifies fees and paperwork, investment needs, taxation and operational continuity as paramount considerations in this process.

Once you have made your decision, you and your legal representation will need to file paperwork with various federal, state and local government agencies and register with the Internal Revenue Service. You will also likely need to reapply for certain licenses, update your insurance and apply for a new Employer Identification Number. Depending on both your current company structure and the company structure you are converting to, you may need to take several additional steps as well, either unilaterally or in concert with other key members of your business.

Conversion: Next Steps

If your company would benefit from converting from one legal business structure to another, the team at LawTrades can help. Our wealth of knowledge and experience helps to ensure that the process of business conversion is as seamless as possible. Whether you know exactly what kind of business conversion you are seeking or would benefit from help making that decision, our team can assist in sorting out the details. Please consider contacting us today in order to take advantage of the potential benefits business conversion has to offer.