If you own a business and have not yet heard of entity restructuring, you might consider investigating how these services can benefit your business. As your business grows and your industry changes, you will find that your current business structure might need to adapt. That is where entity restructuring comes into play. You can adjust the existing structure of your business to accommodate the changes that will affect your ability to do business and how you generate income in the future.
The Basics of Restructuring
Business restructuring is not something that can be done by your current tax or legal professionals. Restructuring your business entity requires a specialized organization, focused on the specific legal and tax needs of restructuring businesses. A specialist can look at your situation and can recommend the right way to restructure your business and help you establish any new business entities that might result from the changes.
Reasons for Restructuring
A business might restructure for several reasons. Some of the more common reasons for restructuring a business entity include:
- Creating a spin-off business
- Adding or removing partners
- Changing the financial interest partners have in the business
- Taking on investors
- Refinancing existing debt
- Selling company assets
- Expanding the business to include new divisions or
- Renegotiating vendor and employment contracts.
Potential Candidates who Need to Restructure
Business restructuring laws differ for each state, but you can use common elements to help you grasp the general concept of how it all works. To better understand why you might need to go through the process of restructuring, examine the following examples.
In the first situation, if you started off your business as a sole proprietorship because it suited your needs, then you might need to alter that structure as your business grows. With expansion, a sole proprietor status exposes you to more personal liability risk and could become a serious financial problem, leaving you vulnerable and at risk. Restructuring into an LLC or corporation will help protect your personal assets and allow you to set up other parts of your business so that you can expand as needed.
In the second scenario, when you started your business, you took on Mr. Smith as a partner because he had comprehensive industry knowledge that you needed. As your company has grown, you have gone in a different direction, and Mr. Smith is no longer as involved in company decisions. It makes sense, at that point, to restructure your business to alter the ownership percentages for each partner. You might even want to upgrade your LLC to a C corporation to take on investors as well. These are just two examples of individuals who might need to restructure their business.
As the needs of your business and the landscape of your industry change, your business needs to change as well. Tax laws make selling assets difficult under certain business structures, while your original business structure might limit your company’s ability to grow. Entity restructuring can help solve some of your problems and move your company forward in the right financial and legal direction.