Your Business is Growing, But Is Your Corporate Structure Growing With You?

Your Business is Growing, But Is Your Corporate Structure Growing With You?

Businesses evolve, industries change, and new opportunities present themselves. As these things happen, your business might need to add a new class of stock, separate and diversify assets, or improve your liability exposure. But, changing your corporate structure can seem daunting, and delaying the changes keeps your growth in a holding pattern.

The good news is that you can move pieces around to make your structure stronger and more flexible. However, this is a complicated process. Without someone to help you reorganize the building blocks of your company, you might not implement the changes you want.

Legal counsel can help by listening to your desired results, laying out a clear strategy, and guiding you through it. From planning to filing new documentation to revising your internal procedures, counsel will make sure your reformed company serves your needs.

Specifically, legal counsel can help you:

1. Know Why You Want to Reform Your Corporate Structure

Before you start tinkering with your entity’s structure, ask yourself why you want to change it. Do you want to offer a new level of stock not initially provided for in your certificate of formation? Or do you need to alter your voting mechanism? Legal counsel will help identify what you need to change.   

Additionally, changes can implicate essential components of your business, like questions of liability, taxes, compliance, investment needs, and your company’s regular operations. Consequently, these are not matters to be taken lightly. As part of your reformation plan, counsel will identify underlying issues and assist you in sidestepping them, so there are no surprises.

2. Comply with Your Company’s Internal Procedures

Remember all that paperwork you had to do to set up your LLC or corporation, like your operating agreement or bylaws? What about your founders’ agreement? Depending on your goals, you may need to amend these documents to reform your company properly.

On top of that, your company’s internal structure will prescribe the mandatory amendment procedures. For example, if you wish to amend the member selection process in your bylaws, you must need a shareholder vote. If you try to ignore that requirement, you risk upsetting your shareholders, sabotaging your changes, and paying to fix the damage. Legal counsel will be there to assist you in drafting resolutions and proposing amendments.

3. Increase Liability Protection Without Making Your Structure Clunky

It’s not uncommon for companies who need increased liability protections to try to solve their problems by forming another business entity around their current structure. If they double the layers of liability protection from an LLC or corporation, they will have more protection, right? 

Well, nesting entities can cause more problems than it solves. The owners must now manage two separate entities. This arrangement is cumbersome and can impact the company’s operations. Even worse, this arrangement may not provide the liability protection originally sought. Even a comprehensive policy may not entirely shield you from a substantial judgment.

Reforming your company structure is intricate, but it doesn’t have to be an ordeal. With proper planning and precise changes to your company structure, it is possible to change your company’s structure while maintaining lean processes and the best liability protection possible.

Is your company experiencing growing pains? Are you sure your current corporate structure best serves your business plan? Assess your options and give your company the room it needs to grow. To learn more tweaking your entity structure, schedule a consultation.

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