Restructuring Business Entities - What to Look For

Tax Professionals' Resource
August 15, 2012 — 1,734 views  
Become a Bronze Member for monthly eNewsletter, articles, and white papers.

It is important to know what to look for when considering restructuring
business entities. There are several ways to structure your business, but it is
important to understand what some of the potential pitfalls of restructuring
your business are. If you don’t choose the correct organizational structure, it
could lead to disaster. 

Before restructuring your business, you should know what all of the tax
implications are for the change you will be making. Depending on your current
organizational structure, a business restructure could lead to huge savings and
other tax incentives. A potential tax pitfall could be if your tax rate
increases due to your organizational change. You should always consult a knowledgeable
professional regarding your tax issues previous to changing your organizational

Another potential pitfall is creating more work than is feasible for your
current employees by changing your business structure. You should also consider
the ease of running your business after you change business structures. Will
you now need a board to make certain decisions? How often will that board meet
and what decisions will the board make on behalf of the business. 

The documentation and information keeping requirements of certain business
structures can also change the way your business operates. If a certain
business structure will cause a paperwork burden on your employees, it may not
be a good choice of structure for your business. If changing structure will
cause an undue burden on your staff, it may not be the best structure for you
or the best time to restructure. 

Losing employees could be a dangerous pitfall that could accompany a business
structure change. You should also understand how changing your structure will
change your employee structure. Will certain positions become obsolete once you
change your structure? Will certain key jobs be lost that may alienate valuable
and important employees that are key to operation of the company? Or will
decreased profits cause you to have to downsize your employee base. 

It is important to analyze the different issues that may arise during a
business restructuring prior to restructuring. Recognizing the potential
pitfalls will allow you to save your company from possible issues or plan
effectively to contain those issues. Considering all of your options and timing
is very important to making a good business structure change. Restructuring can
sometimes be the best way to revitalize a business, but it is important to
determine what the best method of restructuring is in reference to your
business needs. 

Tax Professionals' Resource