The Perils of a Successful Business 

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growing business means a new corporate structure

Incredible growth and revenue in a business might sound like good news, right?

However, as your company grows, so do your liability and legal risk. Growth presents a new set of challenges that leave your business vulnerable to lawsuits, issues with compliance, and unexpected corporate complexity. As your business grows, the issues and opportunities you come across will grow larger. Proactive legal counsel helps you avoid pitfalls and seize opportunities.

One of the changes business leaders make is in the corporate structure of their companies. Here are some tips regarding the two stages of that change.

  • During the Evolution of Your Corporate Structure: As your business grows, you might change from a sole proprietorship to a partnership, or a partnership to an LLC, or an LLC to a corporation. Correctly filing for your structure, adjusting your payroll and tax forms, and organizing your company internally can be a logistical nightmare. Staying on top of all these essential steps helps to protect you from risk and liability.

  • After Your Change in Structure: Increased complexity frequently equals increased liability: A change in corporate structure means a change to how your business is governed, managed, and financed. The added layer of evolving corporate structures increases risks. For example, if shared responsibilities and legal obligations in a partnership or joint venture are not properly managed, you open yourself up to disputes and potential lawsuits. It’s better to carefully describe each partner’s responsibilities and legal obligations. Also, to create clear resolution mechanisms when disagreements arise from in the partnership agreement.

  • More Employees Means More Compliance.  As companies increase their employee headcount, they may trigger new obligations to comply with laws and regulations.  For example, Family Medical Leave Act requirements kick in when an employer has 50 employees while the California Family Rights Act applies to companies with only 5 employees (though this also used to only apply to companies with at least 50 employees). In 2023, the California minimum wage was higher if a company had 26 or more employees, though in 2024, the same minimum wage applies to all companies regardless of size.  Understanding how your legal obligations change based on the size of your company is important to ensuring compliance with the law, especially given how often the law changes.

Being proactive is vital. Just as you would trust your doctor with your health, it’s best to entrust a law firm to secure the success of your company.

Your legal counsel is charged with protecting you and your business interests. Trusted legal advisors offer structuring advice, contract drafting and review services, compliance and governance, dispute resolution, and risk mitigation strategies, among other crucial services.

The bottom line is this: Unchecked growth risks disaster. The best course? Trusted legal counsel that helps you achieve your goals while offsetting risk.