When Is It Time for a Change in Corporate Structure?

Healthy businesses are constantly growing and changing, and those changes can necessitate alterations in the overall structure of the company. The time to make those changes depends on a variety of factors that may arise over the growth of your company, and it’s important to make those changes promptly in order to maintain efficiency within the organization as well as compliance with federal and state laws.

Changes in Management

As a company grows, so too will its leadership, and you may have to take on more people in order to fill important corporate leadership roles. The simplest example of this is if you are the sole proprietor of a business and decide to take on a partner. That will mean changing your entity type to a partnership or even an LLC, depending on the nature of your business.

Acquisitions and Changes in Ownership

Buying out another company or being bought out yourself will necessitate certain changes in corporate governance, entity type, and other areas of your company’s structure. Duplicate departments may need to be removed or repurposed, job functions may be altered, and the leadership may be consolidated in significant ways.

Financial Impacts

A business’s structure affects how cash flow, taxes, and other financial elements are handled. If you are an LLC, for instance, and meet the qualifications to organize as an S-Corp, it would often be in your best interest to do so in order to reduce your overall tax exposure. In some companies, the internal structure may need modifications in order to maximize cash flow and reduce overhead.

Overseas Expansion

A business that expands overseas will need to have the right structural elements in place to support international operations. Leadership functions and organization, tax planning, and even the corporation’s entity type may need some alterations in order to maintain compliance with international regulations and preserve overall efficiency.

Marketplace Shifts

A shift in the marketplace may require some changes to the business’s offerings, and those in turn could impact the overall shape of the company. For instance, some companies may need to expand the services they provide to keep up with new technological demands from their customer base, and that will require hiring people who have experience in those fields, altering facilities and operations, and expanding management. At times, this type of expansion may mean the difference between one entity type or another as new executives are brought on board to handle new operational areas.

Altering Your Corporate Structure

When making changes to your company’s structure or corporate governance, it’s important to keep well aware of all the laws, regulations, tax implications, and financial influences the shift will entail. An expert corporate lawyer will be invaluable during this process—not only will they help you remain fully compliant with laws and regulations, but they can also help you maximize the efficiency of your business with the proper design and placement of the various structural elements the change will entail. Hart David Carson, LLP, can provide the legal counsel and representation you need when changing your corporate structure.

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