Creating a legal business entity will definitely be one of the meaningful steps that you can consider to take affiliate marketing seriously as a full-fledged business, for personal asset protection, credibility of your business, and ultimately for tax efficiency.

Business Entity: The rationale is that it protects personal assets from debt and liabilities the business incurs, among others.
Tax Benefits: These will differ according to the entity of choice your business takes.
Credibility: Provides legitimacy to your brand through formal business entity to source certain partnerships.
Professionalism: A sign that your business means business.

Entity Type Selection

Common types of business entities for a small affiliate marketing firm would be the following :

1. Sole Proprietorship:
Advantages: Easy to establish, less paper work, and flexible.
Disadvantages: Unlimited personal liability, limited tax advantages.

2. Partnership:
Advantages: Easy to establish, shared decision-making
Disadvantages: unlimited personal liability for each partner; complex tax implications.

3. LLC or Limited Liability Company
Advantages: It allows limited liability, flexibility in management structure, and pass-through taxation.
Cons: More complex to set up and maintain than a sole proprietorship.

4. Corporation:
Pros: Strong liability protection, potential tax benefits, easier to raise capital.
Cons: More complex to set up and maintain, double taxation corporate and personal.

Factors to Consider When Choosing

Liability Protection: How much risk are you willing to assume?
Tax consequences: What are the tax benefits and drawbacks of each form of entity?
Management and Control: How would you want to be in control of your business' decision-making?
Future Growth: What are your long-term goals for the business?