Starting a business entails the selection of the legal format of the organization-to-be.  You can either choose to set-up a sole proprietorship, partnership, corporation, S corporation or limited liability company, all of which has its own advantages and disadvantages. The legal structure you choose will determine how much paper work you will have to do, how much personal liability you will incur, how much you will be able to raise money, and how your business will be taxed.
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There are a number of reasons why the structure must be reconsidered from time to time, such as:

These factors affecting the structure of a company often come into play as a business grows and evolves. Businesses go through phases, and different formats may be appropriate for various stages in a company’s life cycle.

For example, in its very early stages, a small retail business may start out as a sole proprietorship. Many home-based and small businesses start out in unincorporated form so that business losses in the early years of business can shelter other incomes.  These “passed through” losses can be used to offset other income you may have.  The drawback though, is that sole proprietorship is the most restrictive form of organization for financing because its total capital is limited to whatever personal funds you are willing to contribute, and whatever you can borrow against personal assets.

Once the business is opened, the desire to give some ownership to a spouse, family member, friend or a key employee may result in a shift to a general partnership. Then the need to bring in a passive investor to support procurement of equipment may result in a shift to a limited partnership. 

Other businesses incorporate when the operation becomes profitable, to better protect the assets of all partners against claims and liabilities to third-party creditors. They may elect the S-corporation status to preserve "pass-through" taxation.  If the company considers growth through business format franchising two years hence, the decision could be made to form an LLC to handle the franchise operations and to better insulate the assets of the two "company-owned" stores. 

Making the best decision about business structure early could promote savings for you and avoid costs down the road. It is critical for anyone starting a new business venture to consult with qualified legal and tax advisers before making this decision.  If you are unsure about which type of business structure is best for your business, you may wish to consult an attorney who is knowledgeable about the various types of business organization.