It can be hard to anticipate the ways in which your business will change or evolve. As a result, the structure that you started out with may no longer provide the right benefits and protections. Changing your business structure, also known as your business entity, could be a smart move.
Common Reasons to Change Business Entities
Changing the structure of your business may be advantageous under several circumstances. For example, if your company adds staff, changes its focus, or acquires significant assets.
Here are some instances where it may make sense to change your business entity:
- To limit your liability: Many businesses start out as sole proprietorships. Usually, this structure does not require any special filings to create and is therefore very simple to set up. However, it can also come with very high stakes, because the owner is personally responsible for all of the various obligations and debts of the business. Changing to a structure with personal protection allows these business owners to minimize their risk.
- To lower your taxes: You will pay taxes no matter which structure you choose. However, switching entities may help you decrease the total amount you owe the IRS. For example, if your personal tax rate under an LLC is higher than the corporate rate, you might consider making the change to a C Corporation or filing an S Corp election.
- To work with outside investors: Investors typically want to work with C Corporations. That is because they do not want to be taxed on all the profits for the business in which they chose to invest. It is much easier to change your structure before involving investors. Similarly, most banks want companies to have formal business structures before approving loan requests, in order to feel more secure in recovering the debt.
- To make a positive impact: Certified B Corporations are held to high standards of social and environmental performance. These companies must also meet benchmarks for transparency and accountability. This hard work is not without benefits because B Corps tend to build trust with their communities, attract employees, and more.
Get Free Legal Help Today
If you are in need of legal services regarding the structure of your business, please call our Chicago business attorneys at (312) 625-1679 to schedule a free evaluation. Markoff Leinberger is proud to serve clients in Illinois, throughout the Midwest, and nationally.