One of the most important early decisions you make when starting a business relates to the form of the business or its legal type. There are numerous different business entities, from nonprofit corporations to sole proprietorships. Each offers certain benefits to entrepreneurs.
Whether you decided on a partnership to keep things simple or a limited liability corporation (LLC) to better protect yourself, the type of business that you create affects how much liability you have as the owner of the company and also how much control other people have over daily business operations or the future development of the company.
Although most businesses will grow and expand as the same kind of entity initially created, there are scenarios in which the owner or executive managing a business recognizes that the best option would be to change the business type. When might making such changes be the best option for your business?
When you shift the focus of the company
No matter how carefully you plan, your business’s operations may surprise you. Customers may respond to a certain niche product that you hadn’t taken very seriously more than your main business concept. You may also realize that the market in which you operate won’t remain profitable forever.
Whether you want to transition from a retail shop to a service provider or start expanding to a national market, when your operations significantly change or grow, the type of business you run may also need to change.
When you need help or want to plan an exit
Perhaps your business has proven successful, and you would like to start planning for its sale and your eventual retirement. Maybe you have just received a great job offer from an outside company and would like to arrange for the company to transition to new ownership.
Converting your sole proprietorship to an LLC, for example, would allow your employees to stay at the business and the company to retain its resources despite your decision to move on. Changing your company’s form can be a beneficial process if you manage it properly. Embracing and supporting your business’s growth could very well mean making some significant changes to the company you created.