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When your business grows, your business form may need to change

On Behalf of | Nov 16, 2022 | Business Law |

Many successful businesses start out incredibly small. You make the products yourself in your home and distribute them locally to customers who find you through word of mouth and maybe some clever social media posts.

You don’t worry about things like legal compliance or insurance because your operation is so small that it doesn’t even meet the qualification to report the income to the Internal Revenue Service (IRS). However, demand for what you provide could quickly exceed what you can do on an individual scale or while not attracting the notice of regulatory authorities.

Whether you have operated an informal sole proprietorship or a simple partnership and need better legal protection because of your company’s growth, it may be time to adjust your business form or officially create the company.

Do you have a legal entity yet?

The first question to answer about how to adjust your business plans and form to your rapid growth is whether or not you have already created a formal business entity and filed the necessary paperwork with the state. If you have not, then you will need to consider carefully what form you want to utilize.

If you already have a basic business, you may need to file different paperwork to change its form from a partnership or sole proprietorship to a corporation or other more complex business form.

Why people choose to change their business form

As your company grows, you have to consider how well you can continue to meet demand. You may need to hire employees, which will require more personal protection. You may also want to look into expanding into a regional distribution arrangement, which could mean more liability if something happens with one of your products.

Changing your business structure will protect you in two ways. First, it can reduce your personal liability if anything or to go wrong with the company overall or the products or services that you offer through it. Secondly, there will be better tax protections as revenue increases if you use the right form for your business.

Properly protecting your business may require professional support. Discussing your plans and exploring your risks with someone who understands the business startup process can help you choose the right business form for your needs.