Successful businesses evolve and undergo multiple adjustments in their lifetime. Various factors, such as changing market conditions and adding a new business partner, can cause investors to restructure their small businesses.
Ways of Restructuring a Business when Adding a New Partner
According to business law attorneys, it is crucial for business owners to choose the right business partners and follow the right steps during the company restructuring process. Without proper planning, this process can go wrong and affect the performance and future of the business.
The following are the changes that a business is likely to experience when the owner adds a new partner ad restructures it.
Change the Company’s Legal Entity
Adding a new partner to the organization means that your business will become a different legal entity. For example, if you were previously running a sole proprietorship, your business will become a partnership or a limited liability company.
When modifying the legal entity of your business, you should ensure that you draft and file the right documents. You and your partners should also comply with the outlined rules and regulations to avoid legal issues.
For example, you should understand the tax rules that affect your new entity. These tax considerations often depend on the state or location of the business.
The new business structure should align with your business plan, vision, and mission. The alignment will ensure that you set your goals and monitor progress easily. Moreover, it will be easy to determine how each component of the new entity will work together to create profits.
Modify the Ownership Interests
When you start collaborating with a new partner, you will need to dismiss the ownership stake that you or other existing partners held. You will also have to determine the correct way to modify these interests and ensure that the new partner acquires some kind of ownership interest in the business. A qualified and experienced business lawyer will help you handle this process properly.
Map or Renegotiate the Contracts
Most business entities, especially partnerships, corporations, and limited liability companies, are founded on contracts. If you include another business partner and modify the company’s legal liability, it is vital to draft a comprehensive agreement and put it in place.
Sometimes, renegotiating the existing contracts is the best option. Adopting these changes creates space for the partner in the business.
Purchasing and Selling Assets
Another way or restructuring a business after adding a new partner to the firm is buying or selling various assets. Adding a new partner in the company creates more opportunities and increases the chances of making more profits. Therefore, you are responsible for placing the business in a solid position to invest in and take advantage of all the new opportunities.
Part of doing this is determining the assets that your business needs or does not need. Start by evaluating the financial groups and identifying the underperforming assets. The company’s financial information can also help you identify the new areas that you should consider expanding into.
Purchasing and selling business assets can be a complicated process. The best way to ensure that you do it right is by consulting a business law attorney.
How to Restructure the Business Successfully
Restructuring after adding a new partner is a significant step for any business. It is vital to put the following measures into place to ensure that the process goes right.
• Play to the Business strengths
The way that you categorize and allocate different activities should play to the company’s strengths. It should also differentiate the firm from its competitors.
Adopting a new business structure works well when the investors reinforce the entity’s differentiation points rather than trying to mimic the competitors. For example, it is more profitable to focus on excellently-performing assets rather than investing in assets that your competitors are dealing with.
You should also ensure that you allocate resources appropriately to support your strengths. Investors should remember that every business entity requires different resources to run.
• Reorganize Business Functions
You should also determine the business systems and functions that need to change. Many aspects of a small business often change when it restructures. These include the organizational culture, leadership styles, incentives, and management processes.
Additionally, each partner should be sure about their responsibilities in the new arrangement. Failing to identify the necessary changes might misalign and paralyze the business.
• Understand Legal Considerations
Restructuring a business for various reasons, such as adding partners, changing ownership interests, and selling assets, requires the intervention of business law attorneys.
These experts will help you interpret the different requirements related to the restructuring. They will also advise you on the right steps to take to ensure that you protect yourself from potential legal liabilities in the future.
• Pace Yourself
Restructuring a business after adding another partner causes a lot of tension and turmoil. Small businesses should understand that the process might take time to bear the expected benefits.
They should also ensure that restructuring does not happen too often because doing so might cause confusion, instability, and change fatigue in the business. Therefore, rhythm and timing are essential aspects when restructuring a business.
In conclusion, it is advisable to adopt a different business structure when you start working with another partner. The company restructuring process requires strategy, foresight, planning, and effective communication to be successful.
Sources
https://lawpath.com.au/blog/want-to-restructure-your-business-here-is-what-to-consider
https://business.gov.au/planning/business-structures-and-types/business-structures/change-your-business-structure
https://www.businessbankoftexas.com/business-resource-center/legal-considerations-for-restructuring-a-business
https://expert360.com/articles/process-of-organisational-restructuring
https://solutions.revivefinancial.com.au/articles/how-to-successfully-restructure-your-business