If you are a business owner, reconsidering your choice of entity should be an ongoing process. Don’t wait for a crisis or a triggering event to think about it. Your original choice of entity (whether sole proprietorship (SP), partnership, S corporation, C corporation, limited liability company (LLC), or other) was not necessarily a permanent selection. You should regularly evaluate a number of business issues, including liability exposure, tax considerations, the ability to raise capital, and employee compensation. The type of business entity you choose impacts these issues. If you are anticipating or experiencing changes in these areas, your business may benefit from a change of entity.
You may decide that only a portion of your business needs a change of entity. In such a case, you may be able to arrange a tax-free spin-off, split-off, or split-up of your business to facilitate the change.
When Does Reconsidering Choice of Entity Make Sense?
As mentioned, you should be evaluating your choice of business entity on an ongoing basis. You may want to give it serious consideration if it will:
- Substantially reduce your personal liability exposure
- Help you achieve favorable tax results for you and your business
- Help you raise needed capital for your business, or
- Improve your compensation package at a time when this is a priority
A change of entity may positively affect one of these areas while negatively affecting another. You should look at the totality of circumstances when making a decision.
Be aware that changing entity can involve significant costs. You may incur filing fees, attorney’s fees, new taxes, and the expense of changing your accounting system, among others. You should include these costs as part of the totality of circumstances you are evaluating.
Over the next couple of weeks, we’ll focus on each of the above four aspects. In the meantime, if you have questions, contact the Experts at Henssler Financial: experts@henssler.com or 770-429-9166.
Disclosures:
The following information is reprinted with permission from Forefield, a division of Broadridge Financial Solutions, Inc. This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
