Many aspiring business owners opt to form their new enterprises as sole proprietorships, partnerships or limited liability companies (LLCs) when they first launch their companies. There are numerous reasons why these business formation structures are appealing to new business owners, including the fact that they are all relatively easy to set up and that they allow new owners significant control over what they’re building.
Over time, however, it may become apparent that transitioning from a sole proprietorship, partnership or LLC to a corporation structure makes good business sense. This is especially true when a new venture that began by serving a local community now has broad appeal and could serve as a viable model for expansion into other states or even other countries.
Additionally, shifting to a corporate structure could allow your business to raise funding in unique ways if you’re looking to expand both significantly and rapidly. It is simply important to remember that there are potential drawbacks to this structure as well so that you can keep a level head as you’re making a decision about your options.
Weighing your options
A corporation structure affords many benefits, including the maximum amount of personal liability protection available for a company’s owners. However, it is important to consider that corporations are owned by shareholders and run by boards of directors. As a result, if you transition your company to a corporate structure, you’ll likely have less control over your venture than you used to.
Additionally, your company will be subjected to more regulations and reporting requirements. It will also be taxed as a unique entity, which could significantly affect what your personal tax return will look like if you’re used to taxing your business on a personal level.
The decision to transition from an existing business structure into a corporation is a consequential one. Therefore, it is important to seek legal guidance if you have questions.