Companies, especially small businesses, can operate in a constant state of flux. As your business grows and shifts, it may require a different corporate structure. Maybe your partnership now needs to be an LLC, or your LLC needs to sell shares as a corporation. (As entrepreneurs and optimists, we don't often think about our businesses moving in the other direction.)
But if you've already incorporated, can you change your incorporation status? And if so, how?
Step one when changing your corporation status is properly assessing the pros and cons of incorporation and figuring out which business structure is best for your business. Different organizations require different legal protections, and determining which will work best for your company is essential before you can switch it up.
Some things to consider, from the U.S. Small Business Administration:
- Going from Sole Proprietorship or Partnership to LLC or Corporation – If you're moving up in the world, you'll want to change from unlimited personal liability to limited. You'll have more paperwork (like articles of incorporation and bylaws) and more fees and expenses.
- Going from a LLC or Corporation to Sole Proprietorship or Partnership – Moving down is more difficult, and you may need to get your shareholders on board with the plan. Your tax obligations and filing requirements will be different, so you'll need to inform the IRS of the change.
Once you've decided on which structure to change to, it's all about following the necessary steps:
- File with Local and State Agencies: Converting your corporate status is a lot like starting out for the first time and you need to file the proper paperwork with your state government office.
- Register with the IRS: You'll probably need a new Employer Identification Number (EIN) and IRS.gov can tell you if you need a new EIN and how to apply.
- Reapply for Licenses: Some state licensing requirements mandate you reapply for licenses after changes to your corporate structure.
- Spread the Word: You'll also want to notify your bank, insurance company, and those you do business with, including suppliers, customers and employees.
If you need legal assistance with your corporate structure, an experienced business organization attorney may be able to help.
There are no comments for this post. Be the first and Add your Comment below.
Leave a Comment