4 reasons to change the structure of your business

On Behalf of | Dec 16, 2022 | BUSINESS & COMMERCIAL LAW - Business Formation & Planning

As your business grows, the current business structure may no longer be the perfect fit, and you may find it necessary to adjust and align with the new changes.

For instance, a sole proprietorship may have been best for your start-up, but now that you plan to scale, it may no longer be feasible.

There are several good reasons for a change

Other reasons that may warrant a change of your current business structure are discussed below.

  1. Legal protection: Some business structures, such as sole proprietorships and partnerships, offer no protection to their owners since they are not considered separate legal entities. Therefore, you may want to change that and protect your personal assets from business liabilities.
  2. Raising capital: Investors and lenders may be hesitant to finance your business without a clear legal structure. As such, you may want to change to a more formal business structure, such as a limited company, that defines ownership and control of your business to attract external financing.
  3. Changes in ownership: If there have been changes in the business owners, its structure must also reflect that. You may have to switch to a partnership or a limited liability company from a sole venture if you sell part of your business or bring new stakeholders.
  4. External factors: You may want to keep up with competitors and new technologies or address upcoming markets. A change in the structure of your business can help optimize operations and help you achieve your objectives.

Have eyes on the future

You may have other reasons to change your business structure not listed above. Either way, it is crucial to understand the potential legal and financial implications beforehand. For example, your new business structure may be subject to a different tax regime. 

Having proper information and legal guidance during the transition will help you deal with any issue that could arise and ensure you prepare for what lies ahead.