Considering changing the structure of your business? There are a number of scenarios in which it might be sensible or beneficial to do so. Changing the structure could afford you more growth potential, or limit liability you would face in certain circumstances.
If you have decided you wish to change your business’s structure, you might be wondering where to start. Here is a quick overview of some of the steps you’ll need to take to make that structure transition happen.
Carefully consider your options
First and foremost, spend some time developing an understanding of the various types of business structures. The structure you choose will determine how much (and what types of) regulatory paperwork you will be required to file, as well as the liability you will bear personally for your business decisions and how your business income will be taxed.
Learn the differences between sole proprietorships, partnerships, corporations (C- and S-corporations) and limited liability companies and figure out which structure makes the most sense for your business and its goals.
Businesses most frequently change their legal structure because there has been a change in the needs their business has. You might need more or different liability. Perhaps you experienced some significant growth in your business. Whatever the situation, carefully consider all of the pros and cons of your current business structure and weigh them against the structures listed above. Characteristics to think about include taxation, liability, investment requirements, fees and forms and operational continuity.
Know what to expect
You should have a general idea of what you can expect out of a structural change before you actually make that change official.
For example, when changing from a partnership or sole proprietorship to a corporation or LLC, you should know that your business will change from having unlimited personal liability to limited. This means you will be required to file more paperwork, and will have greater fees and expenses to cover. You will need to draft bylaws and articles of incorporation for your company.
If you are shifting from an LLC or corporation to a partnership or sole proprietorship, the transition is much more difficult to accomplish. You will need to first be able to convince your shareholders to support this plan, and will also need to liquidate your business’s assets. There are also state and local policies involving licensing requirements you will need to be familiar with.
Map out your next steps
Once you’ve determined the type of change you will make, work with a business attorney to map out how you will proceed from here. This plan should include registering your business with the IRS, filing a DBA with the government, reapplying for some licenses that might not carry over in your structural change and notifying your insurance providers and banks of the change.
For more information about changing the structure of your business, contact an experienced corporate planning attorney in the U.S. Virgin Islands.
Nash Davis is an Associate Attorney in the Corporate, Tax and Estate Planning Practice Group at BoltNagi PC, a full service business law firm serving the U.S. Virgin Islands.