When you started your Massachusetts business, the first thing you decided was what type of business structure you wanted. Each kind of business structure has its own pros and cons, and you chose the one that best fit your needs at the time. Now you are several years down the road, and your business is bigger, better and more profitable than it was when it began. Is it time to change your business structure?
The answer to this question depends on your current needs and your plans for further business growth. For instance, if you are a sole proprietorship, are you thinking about taking on a partner? Do you want to attract investors? Do you need to hire employees? Do you want to stop paying your company’s income taxes yourself as part of your personal income taxes? Do you want to have more control over your company’s management and operations, or conversely, would you prefer to share those responsibilities with others?
Business structure options
You should consult an experienced, knowledgeable business law attorney if you think it may be time to change your business structure. This is a huge decision on your part, and (s)he can explain your various options and the advantages and disadvantages of each business form.
Your business structure options include the following:
- Sole proprietorship
- General partnership
- Limited partnership
- Limited liability partnership
- Limited liability company
Electing Subchapter S status for your corporation is another option. If you are a professional person such as a physician, dentist, accountant, etc., you can make your company a professional corporation.
Your business structure shapes a number of important things including these:
- The extent of your personal liability
- How much paperwork you must file with Massachusetts each year
- How your business pays income taxes and who pays them
Ease of switching
Switching from a sole proprietorship to another business structure is relatively simple since you and your business are one and the same. Consequently you need no one else’s “permission” to change your business form. Be aware, however, that each of the other structures requires a good deal of paperwork that your attorney will need to draft for you. For instance, partnerships require a partnership agreement. Corporations require articles of incorporation and bylaws. These legal documents often are very lengthy and very complex. In addition, a corporation must file an annual report with the Corporations Division of the office of the Secretary of the Commonwealth of Massachusetts.
Switching from a corporation or LLC to a partnership or sole proprietorship is considerably more difficult. Your company’s shareholders must agree to liquidate the corporation before you can change to a different form of business.
Whatever new business structure you ultimately choose, you likely will need to obtain a new federal Employer Identification Number. You likewise may need to reapply for your county and/or city business licenses. You also must contact your bank and your insurance company to see what, if anything, you must do to satisfy their requirements. Since your official business name may well change, such as adding or removing a PC, LLC or other designation, you will need to get new business stationery, new business cards, etc. and make the appropriate changes to your website.
Changing your business structure is a serious undertaking and a decision you should not make lightly. Obtaining the advice and counsel of an experienced business law attorney is crucial.