Is it Time to Reinvent Your Corporate Structure?
There are a number of different legal structures that your business might take on when it’s first being formed, or when you’re going through a reorganization. There are very important legal ramifications which are tightly associated with the kind of business structure you choose, and if you choose the wrong structure to start with, it may well be necessary to reinvent your company under a different format. Here are the major business structures, and the legal consequences of what’s involved with each.
This is the simplest form of any kind of business, because it doesn’t even require a tax ID number or a company bank account. You can also file your taxes on your personal 1040 form. Although simplicity is a big advantage, there are a couple disadvantages to a sole proprietorship. One is that you cannot legally raise funds for this type of company, and another is that if anyone chooses to sue you, there is no legal protection for any of your assets, so you can literally lose everything.
Limited liability corporation
You do enjoy at least some protection against lawsuits under this business structure, and you can create a business name along with your own branding for it. However, there are no tax advantages to forming an LLC, and in some states you may also be charged extra operational costs as well as LLC taxes and filing fees.
It’s very common for small business owners who start out as sole proprietorship’s to switch over to forming an S corporation. There are significant advantages to doing this, for instance saving a lot of money on taxes and protecting your assets against litigation. You can also raise money for the company through the selling of stock to the public.
Partnerships can work well as long as all persons involved in the arrangement have a very clear understanding about what their roles are, what their contributions are, and what they expect to get out of the business arrangement. It’s even a good idea to clearly document an exit strategy for each person involved, so there are never any misunderstandings on that score. LLC’s are the best format for business partnerships.
Funding for corporate changes
When corporate re-organization becomes necessary for any reason, you don’t want to be held back from important changes by the lack of funding. Contact us at FinCentral Capital to discuss ways that we may be able to assist your corporation achieve its realignment, or any other impending changes.