The foundation success of your business depends on the business structure you chose as a career. Business structure is the first step you take before you embark on any business you are doing. That’s the choice you make to start your business empire. The level where your business is today is a result of the choice you make when choosing a business structure.
Possibility of changing your business
There are possibilities that you can change your business structure at any time, just take note of the following facts:
- When changing the business structure you need to give careful thought, arrangement and also organize a meeting with experts and associates.
- Make sure you fully understand and know all the requirements, and consequences of transferring.
- Never change your business structure if you have not set your plan and strategies.
- Your business structure defines the level of how you control your company, the amount of taxes you pay and how you go about your business every day.
If you are at the primary stage of beginning your business, the business structure you choose can be like an everlasting decision because of what it determines. Though, things change just exactly like life. Business shrivels and develops, or maybe you want to reduce your tax responsibilities. It is likely to transform your business structure to improve your changing business wants.
Types of business structures
There is a certain business structure that must be taken to consideration and fully followed when you’re ambition or anxious of own a business. Moreover, there are numerous kinds of business structure available for you to choose from, however, there is a need to know and understand them before changing your business structure, among are:
- Sole proprietorship
- Partnership and Corporation
- Limited liability company (LLC)
A sole proprietorship is a self-business that is owned and run by one person who owns all the earnings and is accountable for all losses, business debts as well as obligations. Thousands of companies that triumph today started as a sole proprietorship. It is the easiest and common way to establish a business. When changing from a sole proprietorship to a limited liability company (LLC) it does not actually mean change, because the sole proprietorship is not an endorsed business structure at first.
A partnership is another business structure that is commonly triumphing globally.
This is a kind of business structure in which two or more people agreed to run and operate a business and share the profits and bear the consequences. There are various kinds of partnership business arrangement; there is a partnership in which all the parties shares the same percent in profits, liabilities and other related matters. While some partnership, the parties involved have limited liability based on the agreement. The agreement will detail how the business should be run, purpose, goals, and objectives as well as the liabilities.
A Limited Liability Company (LLC)
A Limited Liability Company (LLC) is a business structure that has features like separate legal entity, tax flexibility, limited liability, and very simple in operation.
You are permitted to take advantage of the profits of both a corporation and a partnership. However, in LLC’s the owners don’t need to involve in manage or running of the business in as much is not among the Board of Directors. It’s a business structure that offers maximum protection for all the owners through their legal responsibility such as houses, vehicle, bank savings, land property, etc. There is a guarantee of safety even if your LLC runs into liquidation or recession. Despite that the profits and losses run from end to end to your profits without facing corporate taxes, yet, the LLC partiers are known as independent and must pay independent taxes.
As its name is called, a corporation is a company or group of people come together, permitted and certified to act and lawfully known and accepted as a single entity that is separate from its owners.
There are two major kinds of Corporations namely, C-Corps and S-Corps. The C Corporation is subject to dual taxation, this means the company is taxed both before and after the sharing of bonuses. While on the other hand, S corporation is the only common corporate structure that available for small businesses which are generally owed to the exclusion from dual taxation. Also, corporations likewise offer the maximum level of protection through individual legal responsibility but very expensive to practice and need broad of keeping-record.
What Structure Should You Choose?
Before you think of changing your business structure, you need to look into these five major characteristics of a new business structure:
- Asset Requirements
- Effective Stability
- Fees and Forms
Important Questions you must ask yourself
Before you take any step of changing your business structure or start a new business, these questions must be answered by you.
How much money do you need to start the business or change your business?
- What kind of product or service you will offer?
- Is there a need for insurance?
- Is tax compulsory for the product and services you want an offer?
- What are the major things you need to commence the business?
- Do you need to involve people to partner with you in the business?
- Do you need a legal backup in case of any risk or something goes wrong?
When to change your business structure
Change your business structure is something you do anytime, however, when you need to change your business structure is when the needs of the business are changing and you are starting to expand your present structure. Nevertheless, many businesses change their business structure when undertaking important changes, like contracting or pursuing outdoor asset or funding.
When changing the structure of your business it can be extremely operative but there will be an unavoidable distraction so you need to know the main key of change.
Another one for change in business structure, especially for the sole proprietors is better business reliability. If a business structure is strong and flexible, many clients will take the business seriously.
You need to think about why you are changing your business structure, how will it profit your business, impending weakness to making the change and what is needed of you and your business to make it work.
When you want to change your business structure you need to consult or seek the advice of experts because it is something that you cannot do alone. You should also speak with your tax advisors so that there won’t unnecessarily cause of tax occurrence, you need to know the consequences of what the change might be.
How to change your business structure
Firstly, you need to meet your government agency and a tax consultant about guidelines on the steps and form filling regarding your business. Also make sure you know the required permits, protection or process the new structure will need. You need a tax advisor who can help you through the process.
If you have any employees, you can inform them about what the change will be, how the change will be applied and what the short and long-lasting properties will be.
The change should be applied gradually, firstly making the essential changes before settling down for the subordinate changes to confirm a level change for the whole world.
Lastly, Make sure you always stay in touch with your business and legal advisors. Though your requirements are going to start changing from then on you will need to deal with communal taxes and you’ll have to handle the payments when you start employing employees.
What you should not do
When changing your business structure there are some things you should not do. You need to have a solid peculiar stake in safeguarding that you are protecting your business from legal and economic trouble. So be careful not to change your business structure by yourself, always consult business professionals and employees outside your industry.
When consulting business experts outside your company you are likely to get good outcomes you hope to attain and understanding the effects of the business.
You need to be careful when rearranging for tax resolutions. Because you might get a problem when trying to change the unit and want to change it back, you might run into warning issues and even get punishments for it.
The good update is that when changing your business structure, it is easier than you can imagine. It is a good decision for you to plan for business wants before making any business structural changes. By doing so, you are prepared to take any chances that come your way. And it is also a good idea to accept a business structure that will protect you from a personal problem. Also, be self-assured in your change and the reason you are doing it, and have the total belief that it will lead the company to a successful place.