People who start businesses and professional practices generally enter the market with a specific plan. They intend to offer certain services or products to the public. The way that they structure and develop their company is a direct reflection of what they intend to do to generate revenue.
Occasionally, those trying to run businesses may realize that similar products or services have more demand or provide a larger overall profit margin. They may want to pivot to change what the company does to better take advantage of economic opportunities.
Particularly when drastically shifting from one focus to another, such as moving from a sales-based business model to one that offers services instead, dissolving the company and forming a new one may seem like an appropriate solution. However, dissolving a business entity isn’t always necessary when the functions of the business change significantly.
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Leaders can change entity types
The simplest solution for running a business is to plan carefully, structure the company appropriately and follow the business plan consistently. However, if it becomes apparent that the current business model isn’t optimal, it may be possible to change the entity type of the business without actually dissolving the company.
This approach offers many benefits. The owner doesn’t have to worry about the state releasing the name that they previously registered. With a limited liability company (LLC), for example, even a few weeks of downtime could be enough for another business to register the organization’s prior name. The process of closing down one business and starting another one can lead to a host of challenges. Business leaders might lose employees and vendors, as well as customers or clients.
The decision to change entity types rather than dissolving one company to form another can prevent those transitional hiccups from undermining the benefits derived from this major change to the company. Additionally, it may be overall faster to change entity types rather than to establish a new business after the potentially lengthy process of dissolving the former company.
Business leaders intending to pivot drastically to pursue new opportunities may need support as they evaluate their options and handle the paperwork required when changing entity types or dissolving a company. Reviewing personal goals and current company documentation with a skilled legal team can be smart first steps toward a successful shift that leads to a more sustainable business model.
