Is Your Business Built on Legal Sand? How the Wrong Entity Structure Could Be Costing You
Choosing the right business structure isn't just about checking a box when you start your company. It's one of the most important decisions you'll make to protect your personal assets, minimize your legal risks, and prepare your business for growth.
In this episode of Answers with Autumn, AWB Firm founder Autumn Witt Boyd and attorney Katie Nelson unpack the legal and financial implications of your business structure—whether you're a sole proprietor, LLC, or corporation—and what to consider as your revenue scales into the mid six or seven figures.
If you haven’t looked at your business structure since you started your company, now might be the time.
Watch the full legal training
Why Business Structure Matters
Your business entity determines how you pay taxes, whether your personal assets are protected from business risks, and how easy it is to bring on partners or investors.
Here’s a quick snapshot of the most common structures:
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Sole Proprietorships and Partnerships: The default if you’ve never formally set up a company. Easy to start, but your personal bank account, car, and even your home could be at risk in a lawsuit.
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LLCs (Limited Liability Companies): Offer liability protection with less paperwork and formality. Great for most small businesses, especially those with moderate risk.
- Corporations: Provide strong liability protection and are often preferred by investors. But they come with more formalities like annual meetings and recorded minutes.
If you’re still operating under your “starter” structure, it may not be giving you the protection or tax benefits your growing business needs.
When to Re-Evaluate Your Entity Type
If your business has grown or changed significantly since it was first formed, your structure may no longer be the right fit. Consider evaluating your setup if:
- Your revenue is in the mid-six or seven figures
- You’ve hired employees or expanded your team
- You’re hosting events or taking on high-risk contracts
- You’re planning a move to another state
- You’re exploring bringing on partners or investors
Waiting too long to address these changes can lead to expensive clean-up projects down the road.
Why Liability Protection Is Essential
Still a sole proprietor? You’re putting everything you own on the line. Even something as simple as hosting an event or signing a contract with a hotel could result in a lawsuit that reaches into your personal assets.
Forming an LLC or corporation creates a legal separation between you and your business, giving you the liability shield you need as your risks increase.
What About S-Corps?
Many business owners wonder if they should “form an S-Corp,” especially after tax season. But an S-Corp isn’t a separate entity—it’s a tax designation.
Switching to S-Corp taxation can save you money on self-employment taxes, but it also brings added complexity, like running payroll and paying yourself a “reasonable salary.” Whether it’s a smart move depends on your income level, your state’s tax laws, and your long-term goals. This is a decision to make in close collaboration with your CPA.
Thinking About Moving? Here’s What to Know
If you're relocating, your business doesn't automatically move with you. In fact, transferring your entity to a new state is one of the most complex and risky changes you can make.
Common pitfalls include:
- Accidentally dissolving your company
- Creating two entities by mistake
- Failing to register in your new state and incurring fines
Sometimes it’s best to register as a “foreign entity” in your new state before deciding whether to move your business formally. Always speak with a lawyer and your CPA—ideally well before the moving truck arrives.
Should You Form a Holding Company?
Holding companies can help separate assets, simplify employee management across multiple ventures, or protect intellectual property. But they add complexity and administrative costs that most businesses don’t need unless there’s a specific strategic reason.
If you’re considering one, start by talking to your attorney and CPA. This is not something to DIY based on what you heard in a mastermind group.
Investors, Acquisitions, and Business Valuation
A clean, well-maintained business entity makes your company more attractive to buyers and investors. Things like outdated partnership agreements, missing documentation, or sloppy entity setups can:
- Lower your valuation
- Delay the sale
- Increase the cost of due diligence
Even if you’re not planning to sell soon, keeping your entity in order helps you stay ready for future opportunities.
How to Know If You Need to Restructure
Ask yourself:
- Has your revenue grown significantly?
- Are you offering new services or products?
- Have your liability risks increased?
- Have your goals changed?
- Are you thinking about expanding or selling?
If you answered yes to any of these, it’s worth scheduling a strategy session with your legal and financial advisors.
Your Next Step
The smartest business owners we work with don’t make entity changes on their own—they consult their CPA and attorney to develop a clear, risk-informed strategy.
At AWB Firm, our VIP Legal Road Map® sessions are designed to help you understand your current risks and map out the right path forward. We only offer four of these deep-dive strategy sessions each month to ensure personal, expert support.
If you’re ready to risk-proof your revenue and prepare your business for long-term growth, apply now for a Legal Road Map session.
About The AWB Firm
We’re a modern, women-led law firm helping 7-figure online business owners protect their intellectual property, grow compliant teams, and navigate legal challenges with confidence. From trademarks and contracts to legal strategy, we’re here to ensure you can scale without worry. Learn more about our services here.
Not sure where to focus your efforts to make sure all areas of your business are legally compliant and protected? We’re currently accepting applications for our Legal Roadmap Strategy™. Click here to learn more and apply.
Category: Employment Law, Business Compliance, Team Growth
