The correct structure of a company can have many implications and is important to its long term organization, growth and ownership.

Given the concerns regarding liability, taxation and ability to raise capital of the current business structure, the company should retitle itself to be considered an LLC. Under the current classification of Sole proprietorship, the owner is held fully liable for all business obligations, receives no additional tax benefits and cannot bring in partners/shareholder as a means to raise capital. The business will also cease to exist once the owner is no longer operating the company.

An LLC structure, as well as S-corp and C-corp, would generally shelter both the members and shareholders from the liabilities incurred by the business. The advantage of an LLC over an S-corp or a C-corp is that it would be much easier to setup, maintain, and control with the current owner structuring the company as they see fit.

Given the minimal amount of intended investors of the company, it does not appear that buying and selling of company stock is a main concern. The new structure should have the ability to do this as needed, but other concerns take precedence over this. It is for this reason that a C-corp should not be considered due to the high regulations, increased administrative requirements, and double taxation that will occur. An S-corp also carries the strict record keeping requirements of a C-Corp but eliminates the possibility for double taxation. The problem with an S-corp is that profits must be directed according to shares in the company. This eliminates the ability for the current owner to decide with future investors the appropriate distribution of profit. For example, under under an S-corp, if investors are brought and acquire a 25% stake in the company, they will be entitled to 25% of the profit. This may not be beneficial to the current owner as the investors may not work with the daily operations and the profit sharing would be un-proportional to the work being done.
With an LLC, the Investor could still acquire 25% of the company. However, the current owner could receive whatever amount of the profit as mutually decided on between the parties. This would most likely be more, being that the current owner handles most of the day to day functions.

An LLC would be taxed nearly the same way as a sole proprietorship. Thus eliminating the need to make changes to the current accounting practices. An LLC would have the ability to operate in other states. Finally, unless noted by the state, an LLC could continue or dissolved if the owner were to pass away.