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How to prepare for change

by Ainsley Lawrence, Law Technology Today

Making a change to your business isn’t a simple matter. However, it’s often necessary. Whether it’s time to sell the company, add an owner, choose a name or set up a new structure, you’ll want to follow the legal rules.

How can you ensure you cross your t’s and dot your i’s? First, know the reasons behind the change. Then, choose the right legal professional to guide you through the process.

Preparing for change. The first step is to carefully analyze your business before you move forward. Even seemingly simple, small movements can be a disaster if they aren’t tested and thought out in advance. For instance, ConvertKit’s attempt to rebrand to Seva was announced as a complete surprise, and ultimately, completely flopped. ConvertKit wanted to choose a name that meant service and encompassed its mission, but the company didn’t test it with the public.

Seva is a Sanskrit word that means “selfless service,” but it’s also a word connected to the Sikh religion. The pushback was quick and severe, with customers and the public pointing out that Seva is not connected to profits and the use of the word was cultural appropriation. The company ended up undoing months of planning and eating a half-million dollars in costs.

One important step before deciding on a change is to perform a stakeholder analysis to ensure you have the buy-in you need from important leaders and customers. When those outside the leadership team give approval, you’re on your way to success. If you do embark on a change, choose an attorney who knows how to keep clients in the loop as changes occur.

Making a name change. Changing the name of your company may seem minor, but it’s very significant to customers. Be sure — as ConvertKit learned — that you get customer feedback before you move forward.

Why would you change the company name? It may be because of negative publicity or trademark issues. Sometimes the owners want to change business direction or need a name that more fully embodies their brand. For example, Google changed its name to Alphabet in 2015 in order to signal that it was moving beyond search alone.

Once you’ve decided to make a change, you need to follow the full legal process of claiming and registering a company name. This includes making sure the name isn’t taken, notifying the appropriate state office, and changing any license and permits in your business’ name. You also must follow the IRS’ process for business name changes, and you may need a new employer identification number (EIN) as well.

Finally, update your new website domain and social media handles as well as business documents and contracts. And make sure your suppliers, customers and other stakeholders are aware of what’s different going forward.

For instance, KFC’s brand name change was dogged by persistent rumors that the company wasn’t using real chicken and thus couldn’t legally call themselves Kentucky Fried Chicken. There was no truth to that, and it chose to address the rumor publicly on its website.

Selling the business. A business sale generally involves dissolving the original entity and forming a new one under different ownership. As you might guess, this is a complex process best handled by a professional in-house legal team that works with an experienced attorney. For example, when Dow Chemical and DuPont merged in 2015, they tried to maintain their market power after being targeted by activist investors and facing a down market. The merger necessitated many layoffs, but the company has been successful since.

Your board will need to approve a variety of resolutions that include a new owner, the new structure and other details. The new owner will need a new EIN and proper state and federal filings to notify authorities of the new company. Your assets and liabilities will be assigned to the new owner, and you’ll also need to perform a legal business dissolution of the original company, and notify the state business division.

The transition may take time, so don’t expect to walk away without any responsibility as soon as the deal closes. Everything from employee issues to payroll to taxes needs time to be resolved. Often, there will be changes in the organization, structure and who does what work — which may mean layoffs.

Filing for bankruptcy. Hopefully, this is a change you’ll never have to make, but even once successful businesses have taken this step. For instance, Pier 1 Imports announced the closure of hundreds of stores before it filed for Chapter 11 bankruptcy in February 2020.

The good news is that some forms of bankruptcy allow you to restructure your business and emerge slimmer, trimmer and ready to continue. For example, many airlines, including Delta and American Airlines, have filed for and emerged from Chapter 11 bankruptcy to return to profitability. Unfortunately, companies such as TWA and Woolworth’s were not as fortunate.

That doesn’t mean bankruptcy is easy or that success is assured, however. If you choose Chapter 7 bankruptcy, you’re choosing to liquidate your business and a trustee will be appointed to distribute assets. A Chapter 11 bankruptcy is a reorganization — you can expect to file a detailed plan of reorganization showing how you will handle creditors. Still, you must  be prepared for legal discovery, a variety of claims and more.

Hopefully, bankruptcy will be temporary, and you’ll return to success quickly.

Changing your structure. Some changes to the structure are made for tax or liability reasons, and others are due to investors or new owners. These changes may include forming an LLC instead of a sole proprietorship or becoming a corporation. Each of these changes requires specific legal filings and some require additional oversight (such as a board of directors). Another form of restructuring occurs when you decide to reorganize your current departments, change vital business processes or add additional verticals.

Reorganizations are common in the business world, but you must pay attention to employment contracts and laws and communicate clearly as changes occur. Many businesses help excess employees find new positions within the company, while others provide outplacement services.

Changing important business processes is an important way to keep up with your industry, but you need to ensure you introduce the changes effectively. Unfortunately, a lot of process changes don’t stick, but with the right setup, you can improve your chances.

Setting your company up for success. Change is a fact of life in business, but the changes mentioned above have specific legal requirements. Make sure you work with a legal professional who will walk you through the research and filings — and then plan carefully for implementation.

When you keep your business operating by the book, you’ll be much more likely to succeed as you change and grow.

Ainsley Lawrence is a freelance writer who lives in the northwestern United States. She covers politics, social justice and workplace issues. When not writing, she researches her cultural and environmental surroundings.

ABA Law Technology Today was launched in 2012 to provide the legal community with practical guidance for the present and sensible strategies for the future. LTT brings together practicing lawyers, technology professionals and practice management experts from a wide range of practice settings and backgrounds. LTT is published by the ABA Legal Technology Resource Center.

This column originally appeared here.

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