Entity type

Definition

The legal form you buy or form: an LLC, an S corp, or a C corp.

Why It Matters

It decides how the profits are taxed, what the SBA will lend against, and whether a stock sale is even possible, so it is a decision made with an accountant before the purchase agreement is drafted rather than after. Funding a purchase with retirement money forces the answer outright, because that structure requires a C corporation. The seller's form matters as much as yours: buying the assets of an S corporation and buying its stock are different transactions with different tax bills on both sides. You are not required to have one before you start looking, and forming it early buys nothing. The entity is created to sign the purchase agreement, and its form is decided by the lender's rules, the seller's own form, and where the money comes from.

In numbers: The same $500,000 of profit can leave a very different amount in your pocket depending on the form, which is why an accountant's fee of a few thousand dollars before closing is the cheapest money in the deal.