Can you switch your Ohio company’s incorporation structure?

On Behalf of | Apr 17, 2020 | Business Formation

When starting a business, many entrepreneurs will initially incorporate it as a sole proprietorship. However, as their business grows and their circumstances change, they often decide to switch the type of incorporation structure that they originally had to a different one.

It’s possible to switch from one type of business structure to another. The most common five types of structures are sole proprietorships, partnerships, corporations, limited liability companies (LLCs) and S-corporations. There are pros and cons associated with each of them.

A sole proprietorship is affordable to set up and gives an owner complete control over it. One of the major drawbacks associated with this type of formation is an owner’s personal and business finances are intertwined. This leaves the owner completely liable for all of the business’ activities.

Partnerships are similar to sole proprietorships except for the fact that they have more than one business owner. Like a sole proprietorship, partners that join together to form a partnership are also personally liable for all decisions, actions and debts that the business makes or incurs.

If a person is concerned about keeping their personal and business assets separate, then setting up a corporation makes a lot of sense. One of the benefits associated with a business owner incorporating their business using this type of formation is that it allows them to both accept money from investors and also issue shares.

LLC owners can keep their personal and business assets separate. There are also both S and C-corporations. An S- corporation has a “pass-through” structure. This means that its net profits are only taxed once at the shareholder level.

You’ll need to file an Article of Amendment if you decide to switch business structures from one to another. That document will need to detail what you’re changing about your Cincinnati company. You should list changes in registered agent, director or office names or addresses, modifications to the number of authorized shares or the types of activities that the business is engaged in here in this document.

Switching from one type of business structure to another can be complicated. You may be required to file both Articles of Conversion and Articles of Incorporation for the new entity. There are additional filing fees as well as legal and tax implications associated with doing this. An attorney can walk you through the process of doing this here in Ohio.