Changing Your Business Entity Type Requires the Professional Guidance of a Business Lawyer
Many businesses start out in the “see what happens” phase. You start marketing a product or providing a service and see if customers like it. When you go into a business project with a spirit of adventure, you are usually not thinking about details like taxes and legal liability. Consider the bright-eyed aspiring entrepreneurs on Shark Tank who have put careful thought and work into their products but are naïve about the finer points of running a business. Once your business project gets off the ground and the money starts coming in, though, it is time to make serious decisions about, among other things, how your business will pay taxes on its earnings and how you will protect yourself and your business in the event of a legal dispute. You might find that your original plan does not offer your business the protection it needs. If you are planning on starting a business, or if you have questions about legal issues related to your existing business, contact a business law attorney.
Which Entity Type Is Best for You?
One of the first steps in starting a business is applying for an employer identification number (EIN), which asks you to specify an entity type (partnership, sole proprietorship, LLC, corporation, or S corporation, as well as some non-business options, such as charitable organization). Applying for an EIN is as simple as filing a one-page form, and most people do not meet with a lawyer before taking this step. The default option is that very small businesses are sole proprietorships, that is, one-person business operations. Some people decide from the beginning to choose the LLC entity type, because it insulates the business owners from the financial liabilities of the business. Others choose S corporation, because it is an affordable option for small business owners when it comes to paying taxes on the business.
How to Change Your Entity Type
It is theoretically possible to change your entity designation just by sending forms to the entity department at the IRS, but the IRS is usually unresponsive to business owners who attempt to do this. In practice, you will probably need to start again with a new EIN and maybe even a new business name. A small business lawyer can help you decide which of the following procedures you will need to do:
- Dissolving your old business and establishing a new one with a different EIN
- Establishing a new company and having it buy the partners’ old businesses, or having one partner’s business buy the others
- Having existing businesses become members of a new LLC
In any case, it is important to follow the requirements of the new entity type you choose, whether it is a partnership, corporation, or LLC. A small business lawyer can help you make sure you are doing everything correctly.
Contact Us Today for Help
Working with a business law attorney can help you avoid paying exorbitant business taxes and getting mired in bureaucratic obstacles. Contact the Washington DC small business lawyers at Tobin O’Connor Concino P.C. or call 202-362-5900.