Why Corporate Structure Matters (and When it Doesn't)

The Reality of Corporate Structure in Business Valuation

In today's blog post, as we carry on with our Ownership Series, I want to help you think strategically about corporate structure: what it is, why it matters, and when it matters less than you think. Corporate structures can include S-Corps, C-Corps, LLCs, ESOPs, B-Corps, holding companies, and the newer Series LLCs. Each carries different tax implications and ownership rules that affect your accounting processes and distributions.

Here's what matters most: corporate structure ranks pretty low on a buyer's evaluation list. They start with financial performance and your right to win in the market. They won't reject you outright because you're a C-Corp. Your entity type becomes relevant later in the transaction, affecting the deal mechanics and cash flow, but it rarely makes or breaks the sale itself.

When Corporate Structure Becomes a Deal Breaker

There are exceptions. A complicated ownership web with micro shares distributed across cousins, nieces, and nephews can kill a deal fast. If your equity isn't well-documented with a clean cap table, buyers get skittish. I've also seen embedded tax liabilities from C-Corp to S-Corp conversions create friction. That conversion typically takes about five years to complete fully.

Other red flags include regulatory issues in professional services, non-transferable licenses in medical or legal practices, and contracts that allow customers to shop around or cancel when ownership changes. These scenarios deserve immediate attention.

Strategic Planning Gives You Options

The beauty of corporate structure, compared to other valuators, is its flexibility. Building recurring revenue or establishing market dominance takes years. Converting your entity type? You can accomplish that in 18 to 24 months with proper planning. If you're considering a sale three to five years out, you have time to restructure without rushing.

Work closely with your CPA, business advisors, and estate planners. They'll help you understand how entity choice affects your personal wealth planning, executive compensation options, and employee benefits. Tax code changes happen, what works today might not be optimal in ten years.

Where to Focus Your Energy

Think of corporate structure like buying a home. A messy house might slow down offers, but it won't stop the sale if the foundation is solid. Your financial performance, market position, and recurring revenue are the foundation. Corporate structure is the cosmetic work you can address with focused effort when the time is right.

Don't let entity concerns overwhelm you. Stay aware, have conversations with the right experts, and know that you have options. Save your energy for the valuators that truly move the needle on business value and take years to mature.