Most business owners don’t think much about their entity structure—until something changes.
Maybe your income has become more predictable. Maybe your tax bill was higher than expected last year. Or perhaps you’ve added a partner, hired employees, or started thinking about what happens when you eventually step away from the business.
That sense of friction? It’s usually the first sign that your business structure deserves another look.
Not because you made a bad decision when you started—but because your business has evolved. And the structure that worked perfectly three years ago might not be the right fit today.
Why Your Original Business Structure Made Sense
When you first formed your business, the priority was momentum: get set up quickly, start operating, limit liability, and keep things simple.
That’s why so many businesses begin as LLCs or sole proprietorships. These structures are designed for speed and flexibility, and they’re often exactly the right choice early on.
The mistake isn’t starting simple. The mistake is assuming that first decision should never be revisited.
As your business grows and changes, the structure that once worked well can start creating unnecessary costs, administrative headaches, or missed opportunities.
Signs Your Business May Have Outgrown Its Structure
How do you know if it’s time to take a fresh look at your entity structure? Here are some of the most common signals I see with my clients:
Your Tax Bill Keeps Climbing
If you’re consistently profitable and paying more in self-employment taxes than feels reasonable, your structure might be costing you money.
An S-Corp election, for example, can significantly reduce self-employment tax—but only if your income level and business operations make it worthwhile. It’s not automatic, and it’s not right for everyone.
You’ve Added Partners or Investors
Bringing in a business partner or outside investor changes everything. Suddenly you need clear agreements about ownership percentages, profit distribution, decision-making authority, and what happens if someone wants out.
A single-member LLC that worked fine when you were solo may need to become a multi-member LLC with a detailed operating agreement—or even a different entity type altogether.
You’re Thinking About Succession or Exit
Planning to sell your business someday? Want to bring in family members? Thinking about retirement?
How your business is structured today directly affects your options tomorrow. Some structures make ownership transitions smooth and tax-efficient. Others create unnecessary complications and costs.
Your Liability Exposure Has Increased
Maybe you’ve hired employees, taken on larger contracts, or expanded into new service areas. Growth is exciting—but it also means more exposure.
The right structure can help protect your personal assets from business risks. The wrong structure might leave you more exposed than you realize.
“I help clients think of their business structure like the foundation of a house. It needs to be solid enough to support what you’re building—not just what you started with.”
Common Business Structure Options (And When Each Makes Sense)
Let me walk you through the most common options I discuss with clients. This isn’t legal advice for your specific situation—but it should give you a framework for thinking about the possibilities.
Sole Proprietorship
Best for: Very early-stage businesses, side projects, or low-risk ventures where simplicity is the priority.
Limitations: No liability protection. All business income is subject to self-employment tax. Difficult to bring in partners or investors.
Limited Liability Company (LLC)
Best for: Small to mid-sized businesses that want liability protection with operational flexibility. LLCs are incredibly versatile—they can be taxed as sole proprietorships, partnerships, S-Corps, or even C-Corps.
Limitations: Self-employment tax applies unless you elect S-Corp treatment. Some states have higher LLC fees than others.
S-Corporation
Best for: Profitable businesses where owners want to reduce self-employment taxes by paying themselves a reasonable salary and taking additional profits as distributions.
Limitations: More administrative requirements (payroll, reasonable compensation rules). Restrictions on number and type of shareholders. Not always beneficial for lower-income businesses.
C-Corporation
Best for: Businesses planning to raise outside investment, go public, or retain significant earnings for growth. Also useful for certain tax planning strategies.
Limitations: Double taxation on dividends (corporate level and shareholder level). More complex compliance requirements.
The Real Question: What Are You Building?
When clients come to me wondering if they should change their business structure, I always start with the same question:
Where do you want this business to be in five years?
Your answer shapes everything. If you’re planning to stay small and lifestyle-focused, that suggests one path. If you’re planning to scale aggressively, bring in partners, or eventually sell, that suggests another.
The goal isn’t to pick the “best” structure in some abstract sense. It’s to pick the structure that best supports where you’re actually headed.
“The best business structure isn’t the most sophisticated one—it’s the one that fits how you actually operate and where you’re actually going.”
When a Structure Change Makes Sense (And When It Doesn’t)
Changing your business structure isn’t free. There are filing fees, potential tax implications, and administrative work involved. So it’s important to make sure the benefits outweigh the costs.
A structure change often makes sense when:
- You’re consistently paying $5,000+ more in taxes than you would under a different structure
- You’re adding partners or investors and need formal agreements
- You’re planning a sale or transition within the next few years
- Your liability exposure has significantly increased
- You’re expanding into new states and need to optimize for multi-state operations
A structure change might not make sense when:
- Your income is still variable or unpredictable
- The tax savings don’t justify the added complexity
- You’re planning to wind down the business soon anyway
- You’d need to refinance loans or transfer assets that would trigger tax consequences
What a Business Structure Review Looks Like
If you’re wondering whether your current structure still makes sense, here’s what a review typically involves:
First, we look at where you are today. What’s your current structure? How is it taxed? What does your income look like? What are your current pain points?
Then, we look at where you’re headed. What are your goals for the business? Any plans to add partners, hire significantly, or eventually sell?
Finally, we compare options. What would different structures mean for your taxes, liability protection, and operational flexibility? What would a transition actually involve?
The goal is to give you clear information so you can make a confident decision—whether that’s making a change or confirming that what you have is still the right fit.
Ready to Review Your Business Structure?
I help business owners in Utah, Arizona, and Texas make sure their entity structure fits how they actually operate today—and where they want to go tomorrow.
If you’ve been wondering whether your current setup is still the right fit, I’d be happy to talk it through with you.
Schedule a free consultation (video calls available)
Or call me directly: 801-872-9889
