A business can be set up in several ways. Is yours an LLC? An S corporation? C? Regardless, at some point you need to ask: Should I change? When business owners ask me, my answer is that there is no specific time or event that dictates that the time to change has come. We need to look at where your business is and where it’s going.
When you set up your business, I hope you worked with a legal advisor to help determine whether your best route would be to establish a limited liability company or one of the other entities. What was best at the beginning, however, may not be best now because of the way your business has evolved. You’re moving forward. You need to look at the set-up in a different context than you did at the beginning.
Which entity makes sense now? How is your operation going? What is your ownership structure? For example, S corporation holders must be US taxpayers. How does your long-term trajectory look? Who do you want for investors? What requirements will they face? When you start putting this all together, you will have a better idea of which type of entity will work best for you.
The time for this reassessment varies. I can’t say it’s one year, two years or three years after formation. It’s when your business starts to change, and you see the need for a different approach or at least the potential need. Perhaps you are a C corp, and it turns out you haven’t brought in the investors you had expected. That may mean it’s time to consider switching to an LLC that allows more flexibility in management structure.
There is no one-size-fits-all. But all should reassess from time-to-time whether your status – LLC, C or S – still works best.
What is your experience? Have you converted from one type of entity to another? What was the impact? Join us in the comments below.
Each case is unique. Past results do not guarantee future outcomes. This posting is intended to be a tool to familiarize readers with some of the issues discussed herein. This is not meant to be a comprehensive discussion and additional details should be discussed with your attorneys, accountants, consultants, bankers and other business planners who can provide advice for your circumstances. Each case is unique. Past results do not guarantee future outcomes. This article should not be treated as legal advice to any person or entity. FreeImages Photographer Martin K.
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