As businesses grow and evolve, their original structure might no longer be the best fit. Whether you’re looking to mitigate liability, attract investment, or accommodate new business partners, changing your business structure can be a strategic move. However, this process involves several legal and administrative steps. In this article, we’ll guide you through the key considerations and actions needed to change your business structure in the UK.
Step 1: Assess your current situation
Before making any changes, it’s crucial to evaluate why you want to change your business structure. Have you received feedback from customers, investors, partners or other stakeholders that’s making you consider a change? Common reasons include:
Liability concerns: Moving from a sole trader or partnership to a limited company to protect personal assets.
Growth and investment: Transitioning to a limited company to raise capital from private investors or venture capitalists.
Operational flexibility: Switching to an LLP for flexible management and profit-sharing arrangements.
Step 2: Choose the new structure
The next step is to decide which structure suits your future business needs best. We’ve dedicated a whole article to the legal ins and outs of company structures which you can read here. To re-cap though, the options in the UK are:
- Sole trader to limited company
- Partnership to LLP
- Private limited company to PLC
- LLP to limited company
- CIC to limited company
- Limited company to CIC
Each structure has its own benefits and drawbacks, so it’s important to choose one that aligns with your business goals.
Step 3: Legal and regulatory considerations
If you decide that changing your business structure will drive more benefits, then you can start to understand the legal requirements and ensure compliance with relevant regulations. HMRC have shared their insights here but for now, here are the key legal steps you’ll need to follow:
- Dissolution or conversion:
- Sole Trader to limited company: Formally close your sole trader business and incorporate a new company.
- Partnership to LLP: Register the LLP and transfer the partnership’s assets and liabilities.
- Private to public limited company: Re-register as a PLC and comply with additional regulatory requirements.
- CIC to limited company: Re-register the limited company and ensure assets and liabilities are appropriately handled.
- Limited company to CIC: take the community interest test and submit application to the CIC regulator.
- Update your business name: If your business name will change, you need to notify Companies House and update all legal documents, marketing materials, and bank accounts.
- Transfer of assets and liabilities: Ensure that all assets and liabilities are legally transferred to the new entity. This might include real estate, intellectual property, contracts, and employee agreements.
- Notify HMRC: Inform HMRC of your business structure change to update your tax obligations. This might involve registering for VAT, PAYE, and corporation tax under the new structure.
- Update business contracts: Review and update all contracts to reflect the new business structure. This includes contracts with suppliers, customers, and employees.
- Renew licenses and permits: If your business operates under specific licenses or permits, you may need to reapply or transfer these to the new entity.
Whilst there is a lot of admin involved to change the legal structure of your business, working through a checklist is a great way to be methodical and structured in your approach. This way you won’t miss any important steps and you can keep track of progress.
Step 4: Financial considerations
As well as the admin involved, changing your business structure can have significant financial implications so be sure to seek advice before you steam ahead. Areas to consider are:
Tax implications: Different structures have different tax treatments. Consult with a tax advisor to understand how the change will impact your tax liabilities.
Valuation and equity distribution: If you’re moving to a structure that involves shares (e.g., limited company or PLC), you’ll need to determine the value of your business and how equity will be distributed among owners.
Funding and investment: A new structure might open up opportunities for additional funding or investment. Prepare updated business plans and financial projections to attract investors.
Step 5: Communication and implementation
Implementing the new structure may mean you have various stakeholders you will need to communicate with. If you’re a sole trader moving to a limited company then this may not be an essential requirement but otherwise, you may want to consider if a change to your business structure means you need to speak to these groups:
Inform Employees: Communicate the changes to your employees, explaining how it will impact their roles and the business overall.
Notify Customers and Suppliers: Let your customers and suppliers know about the change, providing them with updated contact information and legal details.
Update Public Records: Ensure that all public records, such as your website, marketing materials, and official documents, reflect the new business structure.
Final thoughts
Changing your business structure is a significant decision that requires careful planning and execution. By understanding the legal, financial, and operational implications, you can ensure a smooth transition. If you need expert guidance, the team at Jamieson Law is here to help. Contact us today on 03308 184195 or fill in the Contact Us form here to set up your free 15min discovery call for tailored advice on navigating your business structure change.
