Many business owners don’t have a lot of energy or time to learn the intricacies of all different business formations to determine which one is best for their company when they’re a one-person startup. At this stage, most business owners know that they have what they believe is a good idea that they want to make the masses aware of as soon as possible.
While you may initially set up shop as one type of corporate entity, you may learn that it’s no longer the right option for you as your company grows. Can you just change its structure?
Yes, you can change your corporate structure
Most owners looking to switch business formations initiate the process by filing an article of amendment. This allows you to switch your company’s formation and also update the following other pieces of information:
- Amount of authorized shares your company has
- Registered agent, offices, members or directors’ addresses or names
- Company’s activities
A few different corporate structures exist, each with pros and cons, so it’s wise to make your changes carefully with your future goals in mind.
Which business formation should I switch to?
No one corporate structure is perfect in every way. You’ll have to weigh the pros and cons to see which one better fits your current vision for your company. Some options include:
- Partnership: Have you found someone that you feel can help better manage your workload or take your business to the next level? If you’re considering forming a partnership, you’ll want to keep in mind that this corporate structure doesn’t shield you from financial liabilities related to your business. Any decisions that one of you makes can affect the other.
- A limited liability company (LLC): A few different benefits are associated with forming an LLC. Perhaps one of the more notable benefits of doing so is that it shields creditors and other potential plaintiffs from coming after you for debts and other problems your company might have encountered.
- S corp: Many company owners that find themselves in a growth stage will form an S corp. They often do so to take advantage of its pass-through tax structure. It only allows tax officials to tax net profits on a shareholder level.
No matter which corporate entity you end up selecting, you should be careful to know the steps involved in converting your business from one structure to another. You expose yourself to legal liabilities if you don’t do things correctly.