The Exchange: Entity Structure and Why It’s The Backbone of Your Advisory Firm (Ep. 28)
Listen to the Episode Read the Show Notes The SRG Exchange: Entities and Entity Maintenance Entity structure is not just a legal formality. It plays a major role in how an advisory firm grows, shares ownership, and transitions leadership. In this episode of The SRG Exchange, SRG’s consulting team and general counsel unpack why entities have moved from a “set it and forget it” task to a core piece of business strategy. You will hear how entity decisions influence everything from equity sharing and internal succession to mergers, lending, disputes, and value building. Episode Highlights Why entities are now strategic, not administrative The team discusses how entities used to be treated as a quick setup for liability and taxes, but have become foundational for firms with growth plans, W2 employees, equity sharing, and long-term succession goals. Entity structure supports retention and equity pathways A properly structured entity can create divisible ownership units or shares, enabling retention strategies and giving next-gen leaders a pathway to buy, earn, or convert into real equity. S-corp versus LLC taxed as partnership The group compares the tradeoffs of rigidity and flexibility across entity types. An S-corp can be effective in specific scenarios, but many firms pursuing mergers or complex ownership structures benefit from the flexibility of an LLC taxed as a partnership. Entity structure impacts M&A, mergers, and equity swaps Entities do not only matter for succession and equity sharing. They also shape peer-to-peer acquisitions, mergers, partner buyouts, and equity swaps. Poor structure or conflicting agreements can reduce tax strategy options and create deal friction. Why entity maintenance matters Entity documents need to reflect reality. The team shares how outdated operating agreements and inconsistent ownership schedules can create serious issues during valuations, due diligence, disputes, or even basic financing. What maintenance actually includes Maintenance is more than annual state filings. It includes documenting changes, capturing ownership updates, maintaining minutes, and ensuring titles and governance terms stay consistent over time. The real risk: it is not an issue until it is The group explains why entity problems often stay hidden until a triggering event happens, such as an owner dispute, a loan request, a merger, or litigation. When that happens, outdated documents become evidence. How to approach entity work alongside succession planning Rather than doing entity work in isolation, the team recommends aligning structure with the firm’s goals first. That includes what the founder wants to do long-term, whether the path is internal succession, external sale, mergers, or ensemble building. Who is Featured in This Episode Nicole Frey, CFP® David Grau Jr., MBA Julia Sexton (Sullivan), CVA Ryan Grau, CVA, CBA Kristen Grau, CPA, CVA, CEPA Parker Finot Todd Fulks, JD, BFA Key Takeaway Entity design and maintenance are foundational. When done strategically, they make it easier to share equity, retain talent, execute transactions, and protect long-term value. When ignored, they create friction at the exact moments when a firm needs clarity the most.
Year-End Entity Maintenance Checklist: Position Your Business for a Stronger Year Ahead
An RIA firm owner’s roadmap to increasing your firm’s value in a sustainable way that enhance your firm’s market value now and in the long-run. Succession Resource Group shares six ways firms can carve a path towards smarter growth, identifying levers for better business decisions that retain talented employees as well as ideal profit margins.
Entity Health Check: Is Your Structure Supporting or Hindering Your Growth
In this replay, Nicole Frey, CFP®, walks through how your firm’s entity structure affects growth, compliance, and succession readiness. Use the Health Scorecard to follow along in real time and see if your business is Optimized (22), Healthy (17–21), or Needs Improvement. Watch the Replay Related Resources Entity Health ScorecardFollow Along and Find Out Your Score → Spring Clean Your Business See What You Can Do → 2025 Advisor M&A Infographic Download Now → Get Your Entity Health Score Card A simple, actionable tool to evaluate your firm’s structure Your entity structure is more than paperwork — it’s the foundation of your business. The Entity Health Score Card helps you quickly assess how well your current structure supports growth, compliance, and succession readiness. Answer a few questions, calculate your score, and uncover clear next steps to protect and optimize your firm. DOWNLOAD NOW Grab A Valuation We offer a variety of solutions and turnaround times to fit your needs. Join myCompass Our membership club grants you inside tips and opportunities to grow. Review our Seller Services We’re here to ensure you secure the best buyer, price and terms.
Entity Health Check: Is Your Structure Supporting or Hindering Your Growth
In this replay, Nicole Frey, CFP®, walks through how your firm’s entity structure affects growth, compliance, and succession readiness. Use the Health Scorecard to follow along in real time and see if your business is Optimized (22), Healthy (17–21), or Needs Improvement. Watch the Replay Related Resources Entity Health ScorecardFollow Along and Find Out Your Score → Spring Clean Your Business See What You Can Do → 2025 Advisor M&A Infographic Download Now → Get Your Entity Health Score Card A simple, actionable tool to evaluate your firm’s structure Your entity structure is more than paperwork — it’s the foundation of your business. The Entity Health Score Card helps you quickly assess how well your current structure supports growth, compliance, and succession readiness. Answer a few questions, calculate your score, and uncover clear next steps to protect and optimize your firm. DOWNLOAD NOW Grab A Valuation We offer a variety of solutions and turnaround times to fit your needs. Join myCompass Our membership club grants you inside tips and opportunities to grow. Review our Seller Services We’re here to ensure you secure the best buyer, price and terms.
New York State Entity Publication Guide
Congratulations on forming your LLC with the New York Secretary of State! To help you meet the state’s requirements, we’ve outlined the steps below to guide you through the mandatory publication process. Legal Requirement Under New York Limited Liability Company Law §206, within 120 days of formation or authorization, an LLC must publish a notice once each week for six consecutive weeks in two newspapers—one daily and one weekly—designated by the county clerk of the county in which the LLC’s office is located. A list of available publishers can be obtained from the county clerk’s website. Publication Timeline Within 120 days after filing the Articles of Organization or Application for Authority with the New York Department of State, the entity must publish a notice in two newspapers. These newspapers are designated by the county clerk of the county where the entity’s office is located, as stated in the Articles or Application. Newspaper Specifications One daily and one weekly newspaper must be used. Publications must run for six successive weeks. The content must be either a copy of the Articles of Organization or Application for Authority or a notice containing its substance. Proof of Publication Obtain affidavits of publication from both newspapers. Complete a Certificate of Publication, which can be found on the following website: Link to Certificate of Publication Form. Mail these affidavits along with the Certificate of Publication and a check of $50 for the filing fee to: New York Department of State Division of Corporations One Commerce Plaza 99 Washington Avenue, Suite 600 Albany, NY 12231 For further details, visit the New York Department of State Division of Corporations website. Are you interested in entity support? Let’s Talk. For our Premium and Elite clients, SRG handles this entire process: setting up the publications, securing affidavits, and preparing the Certificate of Publication form, so all you have to do is submit it to the NY Department of State. Book a consultation with our team today and let’s get started.
New York State Society of Certified Public Accountants: Structuring the Deal: Taxation When Selling Your Financial Service Business
December 15, 2020 By: David Grau Jr., MBA, and Nicole Frey, CFPPublished Date: Oct 1, 2020 For professionals planning to purchase or sell a financial services book of business, the most common negotiating points are the purchase price, deal structure, timeline, and financing considerations. These are critical points to discuss and finalize before signing on the dotted line. It’s also important to be aware of the effect of the tax treatment on the deal and know the different tax structures commonly employed. If not structured purposefully, the tax treatment of a deal may unintentionally favor either the seller or the buyer and can have a significant impact on the total value received/paid. Depending on what’s been negotiated, the majority of the sale proceeds may be classified as ordinary income or long-term capital gains. Negotiating this early in the process will ensure that the purchase price can be adjusted up or down to balance the benefit. As a result, the tax allocation of the sale proceeds is one of the key elements of a deal structure and should be considered carefully by both parties. Potential Deal Structures To decide which tax structure works best for the deal, the parties will enjoy some level of flexibility as long as they remain within the boundaries of current tax laws and the objectives of the transaction. The first decision that must be made is what exactly is to be sold (assets and/or equity) before discussing how the purchase price should be allocated to a particular asset or equity or both. The following are the two most common considerations: Asset sale In an asset sale, the buyer selects certain individual business assets to be purchased from the seller, with each asset having a specific dollar amount of the purchase price paid for it and allocated as such in the purchase agreement. This includes the following primary categories (in addition to any tangibles that may be acquired): Personal goodwill: client relationships, rights to revenue, the reputation of the business (i.e., the book of business) Restrictive covenants: nonsolicitation, noncompete, and/or no-serve agreement with the seller. Post-closing transition assistance: services provided by the seller, such as assistance with client meetings, phone calls, emails, letters, etc. Equity (stock) sale Rather than buying individual assets, the buyer and seller may elect to make the seller’s business entity (e.g., corporation or LLC) the subject of the transaction and enter into a sale of the seller’s ownership interest in the entity. The transfer of the ownership in the entity allows the seller to transition all assets and the liabilities of the business to the buyer, including all— contracts, permits, licenses, and registrations. Since both an asset sale or stock sale may ultimately result in long-term capital gains tax treatment for the seller, the choice is influenced greatly by the buyer’s preferences and whether there’s perceived value in buying the business entity. Asset Sale: Categories and Tax Treatment The most common deal structure when buying or selling a financial services practice is a sale of assets, versus an equity-based sale. This does vary based on the size of the transaction; deals involving larger firms will more often employ an equity-based strategy to ensure the acquired business remains a going concern. When purchasing the assets from a seller, it’s important to ensure that both buyer and seller agree on how the purchase price will be allocated for tax purposes, and such meeting of the minds should be included in the purchase and sale contracts. Personal goodwill The majority of the purchase price is typically allocated to personal goodwill—an IRC section 197 intangible asset consisting of the seller’s client relationships, reputation, expertise, and abilities. Year-to-date 2020, the average transaction for financial service professionals allocated 93% of the purchase price to personal goodwill, up from 91% in 2019. For the seller, the sale of personal goodwill should generate long-term capital gains tax treatment and be amortizable over 15 years by the buyer. Post-closing transition support Depending on the extent of the seller’s services to the buyer post-closing, compensation for these services can be either included in the purchase price (typically for limited services such as introducing the buyer to the transferred clients) or be paid in addition to the purchase price (for the seller’s expanded involvement post-closing beyond just transitioning clients). As shown in Figure 1, the average transaction allocated 3% of the purchase price to the seller’s post-closing support, though this allocation tended to be greater on smaller deals. For the seller, they want to ensure only a de minimis portion of the purchase price is paid for their transition assistance, as this portion is labor and taxed as ordinary income, subject to Social Security and Medicare taxes. The buyer, however, generally seeks to allocate more of the purchase price to the transition support, as this portion provides them a tax write-off in the allocated amount, pro-rated for the year in which the services were provided. Restrictive covenants To protect the buyer’s investment, the seller will commonly be required to enter into a restrictive covenants agreement (similar to personal goodwill, this too is an IRC section 197 intangible asset), whereby they promise not to compete with the buyer, solicit the buyer’s employees or vendors, or serve any of the clients the buyer purchased from the seller. In exchange for this promise, the seller will receive a portion of the purchase price as consideration, resulting in ordinary income for the seller and a 15-year amortization by the buyer. Because this asset doesn’t produce a tax-favorable outcome for buyer or seller (relative to the alternatives previously described), neither party seeks to allocate any more than would be required to ensure the buyer has an enforceable contract. Year-to-date 2020, the average transaction allocated 3% of the purchase price to restrictive covenants. Not allocating a portion of the purchase price to restrictive covenants may render the provisions unenforceable and otherwise confuse the intended tax result. Tangible assets Tangibles assets, such as furniture and equipment, are not commonly part of the deal since there’s often little to no value to
Spring Clean Your Business | The Ultimate Annual Entity Maintenance Checklist
An RIA firm owner’s roadmap to increasing your firm’s value in a sustainable way that enhance your firm’s market value now and in the long-run. Succession Resource Group shares six ways firms can carve a path towards smarter growth, identifying levers for better business decisions that retain talented employees as well as ideal profit margins.
Set Your Firm Up for Success — Using Entity Structure to Unleash Growth
Starting your business as a financial advisor is an exciting prospect. You’re setting the foundation for a successful future and commitment to growth. Whether you are creating a platform to last the duration of your career or working to formalize/upgrade your established enterprise, effective entity planning and setup will serve as the base on which you can build and hopefully as a springboard for future generations. But there are important considerations to navigate when setting up an entity that are almost always overlooked and go beyond using your state’s website or an online filing service to establish an entity. Financial advisors have unique considerations and constraints when it comes to forming business entities, which are even more important to get right as you grow and scale your business. Here are the areas that you need to examine when choosing an entity type. Getting the Basics of Entity Right Why Financial Advisors Set Up a Legal Business Entity Business goals play a major role in choosing the ideal structure for an entity. Short-term needs and long-term goals are important to consider, but there are also highly specific reasons unique to financial advisors for choosing an entity. Entity Structure as a Personal Liability Shield Protecting yourself and your personal assets from business risks is paramount. Your E&O insurance is great but won’t address your other liabilities as a business owner. Personal liability protection becomes a concern when your firm grows, you hire/fire, sign contracts, retain outside experts, and you take on larger amounts of more complex engagements. If you have business partners, you could potentially be held liable for their actions. Creating an entity is a simple and effective way to ensure that liabilities stay with your firm, not you as an individual. Equity Sharing Enables Firm Growth When you grow your financial advisory firm, equity sharing is another factor to consider. More firms attract and retain quality talent by structuring incentive programs that leverage the value and equity in the business. Equity sharing can be an effective way to fulfill promises of advancement to rising stars as part of your firm’s career path. It can also be used to add new business partners and merge with other advisors as your firm grows and evolves. Having an entity and the related governance agreements in place gives you something that is easily divisible and helps ensure you can get the equity back should you need to. When operating as a sole proprietor, equity sharing is effectively impossible since a sole proprietor consists of only one professional, and adding a second then creates a defacto partnership with no liability protection or tax savings, which isn’t the intended outcome for most advisors adding a partner or junior partner. Tax Advantages of Proper Setup Setting up an entity will not guarantee you’ll save money on taxes, but when done right, most advisors do have tax savings – which, as you grow, becomes more and more material. But beyond the typical tax savings (again, when done right), you will find major tax savings as you leverage the entity to buy practices, sell equity internally, or merge outside practices in. Extended reading: First DOL, Now IRS Gunning for Advisors Advisory Firm Entity Structures and Taxation Understanding the Difference Between Legal Form and Tax Status When setting up an entity, there are two different aspects to keep in mind that can be confusing: the basic legal form and the tax status. The legal structure is registered with your state, such as a limited liability company (LLC) or corporation. This legal form determines which laws in that state apply to the entity. This may mean that there are statutes regarding how that entity can be managed and operated, and business formalities that must be followed. The tax status pertains to how tax authorities like the IRS view your entity. For instance, you’ll notice on the tax forms that there is no box to check for an LLC, because an LLC is only a legal form, not a tax status. In the example of an LLC, you must then choose how the LLC will be taxed. A single-member LLC, for example, is usually taxed as a sole proprietorship (a disregarded entity) where the income and deductions are reported on your personal tax return. Multiple-member LLCs are usually taxed as partnerships, unless you elect to have your LLC taxed as an S-corporation (but it’s still an LLC in the legal sense). If you form a corporation, the IRS needs to make a distinction whether it’s a C or S corporation, because it makes a dramatic difference tax-wise. There are also nuances to consider, such as who will/can own an interest in your LLC or S-Corp, and understanding the pros and cons of each entity type as it pertains to the legal and tax implications. Pass-Through Taxation for Financial Advisors To further elaborate on tax status, most entities have what’s called pass-through taxation. This means that the income isn’t taxed at the entity level, but your share of the income and deductions passes through to the personal level. This makes the income subject to Social Security and Medicare taxes. If you own an S-corporation, the taxation is also pass-through, but with some differences. S-corporation shareholders need to pay themselves a “reasonable” salary that satisfies the IRS. This salary is reported on Form W-2 with payroll and income taxes withheld. However, the profit distributions to the owners are not subject to Social Security and Medicare taxes. C-corporations are not pass-through. The income is taxed at both the entity and shareholder levels. Officers of C-corporations need to be paid salaries reported on Form W-2 with payroll and income taxes withheld. Dividend payments are taxed at the dividend rate and are not subject to Social Security and Medicare taxes. Choose the Right Entity Structure Advisors Should Consider More than LLC vs S-corp Selecting the right entity type often seems easy, it’s likely a limited liability company or S-corporation. You do a quick Google search, or hopefully have a conversation with your local CPA or attorney, and they’ll share their recommendation. However, before making such an important decision, it is critical to make the selection in the context of your
4 Reasons to Formalize Your Business Entity as a Corporation or LLC
The decision to form an entity structure for your financial practice is a critical step for experienced independent financial advisors. Many advisors address this topic after a specific need for it has arisen, but addressing it proactively allows you to establish the right structure with less stress and take advantage of numerous other benefits along the way. This article highlights the signs indicating when it’s time to establish an entity and the risks associated with not doing so. Business Growth and Liability Protection As an advisor, you likely have errors & omissions insurance to protect your business. But, that only covers you as an advisor, not as a business owner. As your practice grows, you will hire/fire more frequently, your business will become increasingly complex, and thus it becomes imperative to establish an entity structure (e.g., a limited liability company (LLC) or a corporation). This is even more true if you are operating or setting up your own independent Registered Investment Advisor. By doing so, you separate your personal assets from business liabilities, providing a layer of protection against potential legal claims and financial risks. If you fail to establish or maintain an entity structure, your personal assets are vulnerable, putting your hard-earned wealth at stake. Professional Credibility and Permanence Forming an entity lends professionalism and permanence to your financial practice. It demonstrates to clients, colleagues, and potential partners that you are committed to a long-term business venture and take your profession seriously. Without a formal entity structure, your practice may be perceived as a lifestyle practice or temporary endeavor, raising doubts about its stability and sustainability. Business Entity Tip from SRG Tax Efficiency and Flexibility Establishing an entity structure allows you to optimize your tax situation and take advantage of potential deductions, credits, and other tax benefits. Different entity structures offer varying tax advantages, so it’s essential to consult with a professional to determine the most suitable structure for your practice. Operating without an entity structure can result in missed tax-saving opportunities, potentially leading to higher tax liabilities and reduced profitability. It is important to consider your short and long-term growth plans as part of this consideration, as some structures may make your ability to merge/purchase/tuck-in other practices more or less difficult. Extended reading: First DOL, Now IRS Gunning for Advisors Succession Planning and Business Continuity Planning for the future is crucial for any financial advisor, including establishing a workable succession plan and ensuring business continuity. An entity structure enables you to more easily transfer ownership, sell the practice, or pass it on to a successor, maintaining continuity for clients and preserving the value you’ve built. Operating without an entity structure can complicate or hinder the succession process, potentially leading to disruptions and client attrition. For experienced independent financial advisors, the decision to form an entity structure for their practice should not be overlooked or dealt with as a quick “check the box” issue. Establishing the appropriate entity structure will ensure your business is futureproofed and avoid having to rework your entity later. It also provides crucial benefits such as liability protection, enhanced credibility, tax efficiency, and a solid foundation for succession planning. Failing to form an entity structure exposes personal assets to risk, limits professional credibility, and may result in missed tax benefits and future succession challenges. Whether you are a Registered Investment Advisor, a dually registered advisor under a broker dealer, or a hybrid, SRG’s team of entity experts has worked with financial advisors nationwide to evaluate the options and provide recommendations designed to support their business while navigating the nuances of the financial services industry. Learn more about SRG’s Business Entity Services for Financial Advisors
Fueling Your Future: Unleashing Growth Potential through Entity Planning
Operating the entity of your business as intended can not only significantly decrease the risk of an IRS audit, but also maximize your business growth potential. Join Nicole Frey, CFP®, to learn more about how you can properly set up and use your business entity to support your business decisions and growth. In this session, we covered: Why every advisor should use an entity to operate the business The most important steps to set up the entity The implications on commonly overlooked details How to use the entity correctly to avoid issues with the IRS and minimize audit risk The power of having the entity and what to do with it once established Watch now to learn the right way to set up and optimize the use of your entity or be reassured that your entity is formed correctly if you already have one. Watch Recording Resources [Blog Post]The Importance of Formalizing Your Entity Structure → [E-Book]Your Guide to Proper Entity Structure → [Article]First DOL, Now IRS Gunning for Advisors → Learn more about SRG’s Entity Support and Equity Sharing Services. Schedule your free consultation below! Presenters Nicole Frey, CFP® Director of Team Solutions