Are you unsure about whether you should change your business formation? Maybe your company’s growing. Maybe taxes are piling up and you want a break. Maybe you want to employee staff. Any or all of those could be reasons to change your business formation or entity.
Why would I change my business formation?
The U.S. Chamber of Commerce suggests that “it’s common to change from a simple structure, like a sole proprietorship or partnership, to an LLC or corporation. Some business owners make a change for tax purposes or because they are acquiring or merging with another company.”
Here are some reasons you might make the switch. To:
- Lower your liability
- Improve your tax burden
- Attract investors
- Achieve environmental or social impact
How to Change My Business Formation
Sometimes, business owners may decide to add partners to their company and want to change its structure. You can convert your business from a sole proprietorship to a partnership, a corporation, or a multi-member LLC. Prior to making the switch, it’s helpful to understand the differences between the different business forms and what each one has to offer.
How to make the change in six steps.
- Change your state filing status (sole proprietors don’t need to do this).
- A new Employer ID Number (EIN) will probably be required.
- You may need another name (Doing Business As, aka DBA), which you get approval from your county.
- Information with your state taxing authority and other state agencies will need to change for sales tax and other purposes.
- Licensing and permit agencies will need to be informed of the change.
- Notify anyone with whom you do business, including vendors, advisors, insurance providers, banks, customers, and contracting parties.
If you think a switch would be beneficial to your business, reach out to me. We can discuss your reasons, outline the steps you need to take, and review the tax pros and cons.