This is the big red flag - I would have pushed back immediately and bailed if they didn't acquiesce. Client has no authority to say how your business should be

This is the big red flag - I would have pushed back immediately and bailed if they didn't acquiesce. Client has no authority to say how your business should be taxed, that's preposterous. They're doing you a favor by letting you know in advance how difficult they'll be to work with.