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22. What are the Common Reasons for Changing Business Structures?

There are a number of business structures you can choose from when starting a company or business. While choosing a structure, you must be aware of the advantages and disadvantages of each structure. Also, you must consider the structure that suits your business needs and you must consider your legal obligations with that particular structure.

However, there is a possibility that you want to change an existing business structure. There could be various reasons for restructuring your business. You might need to change the business structure for the benefit of the business to achieve your business goals or it may be due to a situation out of your control.


Common reasons to change the Business Structure


1.    Change in Management: you might be adding another business partner, so you need to change from sole trader to partnership structure.


2.    Change in Ownership: In some situations when you buy a new business you may want to change the structure to be able to meet the targets or goals of your business.


3.   Business operations:  A change in business structure may be needed to improve the performance of the business and to carry out the operations better. 


4.    Financial Goals:   A change in business structure may be done so you may be able to achieve your financial goals like improving profitability.


5.    Downsizing or Economic Downturn: You might be downsizing due to company losses or expenses or to make the operations more  simplified e.g. changing from a company to a partnership or sole trader.


5.    Business Growth: You may be expanding your business overseas or you need to extend your product line for which you need to change the business structure to facilitate this growth.


Steps before changing the Business Structure


Following steps can be taken before you make the decision to change the business structure.


1.    Review your business structure change

First, you need to consider why you need to change the existing structure. Since it is an important decision, you need to consider your legal, tax and reporting obligations.


2.   Have full understanding of each business structure

No matter which business structure you choose every one of them comes with its own legal obligations. Hence, one must understand the differences between each structure before making the decision.


3.    Get professional advice

It is recommended that before making any changes to the business structure, you must seek advice from an accountant, professional business advisor or solicitor as per your requirements.


4.    Review Business Plan

Before restructuring, you must review your business plan, marketing plan and succession plan to ensure your goals and objectives are aligned with the new structure.


It is essential to update all your marketing plans once you decide to change your business structure so that your marketing strategies reflect your new business structure.

Changing your business structure is a complex and lengthy process; therefore, you must consider all the scenarios before finalizing the restructure of your business.