Best firm structure that allows for the future transition of ownership and value.
Many Advisors are merely managing a book of business, not running an actual business. As such, most Advisors typically have a sole proprietorship and the Advisor is filing a Schedule C for tax purposes. Sole Props are the most common and simplest form of business entity. While this may indeed work for a “lifestyle practice”, the complete identity of the business lies with its owner and oftentimes does not meet an entrepreneur’s long-term objectives. Disadvantages include: unlimited and unshared liability, lack of stock, limited resources, and upon the death of the Owner, the “business” also dies (and will be disposed of according to the terms of the owner’s will). Additionally (and in my opinion, most importantly), there is no “business” to sell or transition – there is no actual legal structure in place to support/facilitate it.
Any type of business entity (other than a Sole Prop) will create a structure that allows for the future transition of ownership and value. These include: an S-Corporation, a C-Corporation, a Limited Liability Company (taxed as either an S-Corp or Partnership), or a Partnership (either General or Limited). Each structure has its pros and cons depending on your long-term objectives and it is recommended that you work with a tax professional to determine the correct choice for your specific needs and situation.
Bottom line, the lack of a formal legal entity will negatively impact valuation and is perhaps one of the easiest “fixes” to make.