As a business owner, you may want to change your business structure for a variety of reasons. For example, as a small business grows over time, so does the risk of running the company and the need for structures that protect individuals from liability. It can also be changed to a formal structure that defines the rights and responsibilities of individuals.
In any case, various rules and legal procedures must be followed during this transition. The process will vary depending on your current business form, location and the business structure you are trying to transform.
For example, to convert a sole proprietorship or partnership to an LLC or corporation, all you need to do is submit the required documents to the Secretary of State. Sole proprietorships and partnerships do not exist as separate legal entities and do not require dissolution. On the other hand, changing an LLC to a stock company requires first dissolving the original business, liquidating and distributing the assets, and then forming a new entity.
This can be a time consuming and complicated process. So here are four tips to consider for a smooth transition.
Business Entity Changes: 4 Tips for a Smooth Transition
1. Partner with a business document filing service
Once you have identified the type of entity you wish to convert, you must begin submitting the necessary conversion documents to the Secretary of State in order for the conversion to take effect.
For example, if you want to change your sole proprietorship to a limited liability company (LLC), you will need to create a file. Articles of Incorporation of the OrganizationAdditional documentation may also be required due to changes in operating modes.
For example, you may need to file operating agreements and biennial reports, obtain a new Employer Identification Number (EIN), and reapply for permits and licenses. Handling all this on your own can be time consuming and confusing. Therefore, we recommend working with a reputable document filing service company to manage all your business filings.
you can do it right away Start LLC Online By working with knowledgeable professionals who can guide you through the process. They prepare all the paperwork your state needs to form an LLC and submit it directly to the Secretary of State.
The benefits of using document filing services when changing entities are:
- All information can be shared online in a central location, saving you time and hassle.
- Our business specialists follow all legal procedures and submit your documents correctly, eliminating the risk of costly errors and refusals.
- With filing services, there is instant processing and order turnaround.
- Most of our services offer personal customer support by assigning a business specialist to every client. So if you run into any issues during the filing process, you can get immediate help.
So choose the right service provider for a hassle-free filing experience.
2. Work with a Lawyer
While not every aspect of your business requires an attorney when converting, there are certain matters that require a legal expert’s opinion. For example, you should involve an attorney in drafting the operating contract to ensure it is comprehensive and protects your interests. increase.
Below are other ways attorneys can simplify the transition process.
- We provide legal advice on the best business structure for your business needs. For example, if you want a partner or shareholder, a lawyer can advise you on how to set up an entity that minimizes your business liability.
- If you want to change to a partnership, draft a partnership agreement.
- Explain tax incentives. They can recommend strategies to reduce your tax burden. For example, set a new entity in one state instead of another.
- Guide you through the process of obtaining permission to expand your business to other states.
Therefore, we recommend that you discuss with your attorney the specific rules and requirements that apply to your business during the conversion process. Also, remember that your legal needs are just as important as your brand. That’s why you need to hire a lawyer who understands your business goals.
3. Keep the right stakeholders onboard
Stakeholders are, for example, people who have a high level of influence and interest in an organization, partners or investors. Essentially, they act as the “powerhouse” of the migration process and therefore should be the most involved in all change efforts. For example, working closely with the right investors can help you:
- Sufficient capital to fund the change process and grow the new entity.
- Guiding strategies for integration into new ventures to maximize profits and minimize risks.
- Recommendations for a highly-trained workforce to hire to drive growth.
Also, when changing to a formal structure such as an LLC, limited liability company, or partnership, clear rights and responsibilities must be set for each partner or shareholder.
4. Prepare your clients and employees for the transition
As you change to a new structure, you need to stay up to date so your customers and employees can move with you. For example, you can introduce new shareholders and let them know about services moving to another branch or new products offered by the company. This will show your clients that you care and they will remain loyal to your brand in the new phase.
It also helps to communicate changing processes and accountability to employees. For example, whether the new structure will change the management team and how this setup will improve the management team’s experience.
In addition, changes in the business structure will create new demands such as an increase in workflows, an increase in personnel due to new services, and the need for training. Therefore, roles should be defined to ensure that normal operations run smoothly in each department during the transition period.
Finally, the finance team needs to ensure the payroll process continues seamlessly as the structure changes. Motivate staff to improve their performance to reach new goals.
Conclusion
As your business evolves, there are aspects of new business entities that become aware of your company’s needs. Therefore, it is recommended to change the structure of operations to one that can be scaled.
This change may affect personal liability, taxation, ownership and the general way the Company operates. Therefore, we recommend adopting the above tips to ensure a smooth transition.
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