Entity structuring, demystified
LLC, S-corp, holding company, series LLC — and the tricky part nobody explains: how to move money between your own companies without creating a mess. Here are the building blocks, the common structures, and the clean way to do intercompany money.
The Financial Angel runs your whole finance function across every entity you own: it explains the options in plain English, recommends the structure that fits your business and assets, drafts the intercompany loans and resolutions, keeps the books clean — and hands anything that needs a license to a vetted attorney or CPA.
The workhorse entity. It separates your personal assets from the business, is simple to run, and by default is taxed as a pass-through — profits and losses flow to your personal return. See forming a business for the mechanics.
Good fit if — you want liability protection and tax simplicity for almost any business or property.
Not an entity type but a tax election an LLC or corporation can make. Owners who work in the business take a reasonable salary plus distributions, which can cut self-employment tax on the profits above that salary.
Good fit if — an active business is throwing off enough profit to justify payroll and the extra filings.
A standalone taxpayer that pays corporate income tax; profits paid out as dividends are taxed again to owners. Preferred when you plan to raise venture capital, issue stock, or retain earnings inside the company.
Why it matters — it's the standard for outside investors and stock-based fundraising, at the cost of double taxation.
Partnership structures with liability limits. An LP has general partners who manage and limited partners who invest; an LLP shields each partner from the others' malpractice — common for professional firms and family holdings.
Good fit if — you're pooling investors, or running a licensed professional practice.
A single LLC that can spin up internal "series," each able to hold its own assets and, if properly maintained, keep its liabilities separate from the others. Available in some states; the separation is less court-tested than fully separate LLCs.
Good fit if — you hold many assets (e.g. rentals) and want cheaper compartments than dozens of standalone LLCs.
An LLC with one owner is single-member; two or more owners make it multi-member. The count drives default taxation: single-member is disregarded (reported on your return), while multi-member is taxed as a partnership by default.
Why it matters — ownership count changes your tax return, your paperwork, and how strong your liability shield is.
A business the IRS ignores for income tax, so its activity lands on the owner's return. A single-member LLC is disregarded by default — you keep the liability shield without filing a separate business tax return, unless you elect corporate treatment.
Why it matters — you get legal separation and tax simplicity at the same time.
A parent entity owns several operating companies instead of running a business itself. Each subsidiary's risk stays contained, profits flow up to the parent, and you can add, sell, or wind down a line without touching the rest.
Good fit if — you run multiple businesses or brands and want one clean top of the stack.
The classic protection pattern: one entity owns the valuable assets (real estate, equipment, IP) and leases them to a second entity that does the risky day-to-day work. A lawsuit against operations can't easily reach the assets.
Why it matters — it keeps a claim against the business from swallowing what the business is built on.
Holds title to a property in a trust's name to keep the owner off public record and simplify transfers. It offers little liability protection alone, so it's usually paired with an LLC as the beneficiary. More in the trusts guide.
Good fit if — you want title privacy and easy transfers layered on top of an LLC.
Spreading rental or investment properties across several LLCs (often one per property or small cluster) so a claim tied to one asset can't reach the others — frequently unified under a single holding company for reporting and control.
Good fit if — you own several properties and want each one's risk walled off.
One entity lends money to another, documented with a written promissory note, a market interest rate, and a repayment schedule. Treated as a real loan — with paperwork and actual payments — it stays a loan rather than being reclassified as taxable income.
Why it matters — documentation is the difference between a loan and a disguised distribution the IRS can tax.
Any movement of cash or assets between entities you own. Each transfer needs a defined reason — loan, contribution, distribution, or fee — and must be booked the same way on both sides so the two sets of books always agree.
Why it matters — an unlabeled transfer is the fastest way to blur your entities together.
One entity charges another for real services it actually performs — bookkeeping, management, shared staff. The fee must be reasonable for the work done; inflated or fictional fees invite reclassification and penalties.
Good fit if — a holding or management company genuinely provides services to your operating entities.
Money or property an owner puts into an entity to fund it, increasing their equity (basis) rather than creating a debt or taxable income. The mirror image of a distribution — cash going in, not coming out.
Why it matters — recording contributions correctly protects your basis and your tax position later.
Profits paid out from an entity to its owners. For pass-through entities they're generally not taxed again on the way out (the profit was already taxed), but they must respect ownership percentages and leave the business solvent.
Why it matters — clean distributions keep your liability shield and your tax reporting intact.
The rule that transactions between related entities must be priced at "arm's length" — the price unrelated parties would agree to. It governs intercompany fees, rents, and loan rates so profit isn't artificially shifted between your companies.
Why it matters — arm's-length pricing is what keeps intercompany charges defensible.
Separate bank accounts per entity, no paying one company's bills from another's account, no mixing personal and business funds, and matching entries on both sides of every transfer. Clean books are what make the whole structure hold up. See bookkeeping.
How the Angel helps — it books every intercompany move on both sets of books and flags commingling before it becomes a problem.
The core reason to use entities: a claim against one business or property is contained to that entity and can't reach your other assets or your personal wealth — as long as the entity is respected and not commingled.
Why it matters — it's the wall between one bad event and everything else you own.
Entity choice and elections (pass-through, S-corp, C-corp) shape how much tax you pay and when. The right structure can cut self-employment tax, time income, and align with your tax and asset-protection plan.
Why it matters — the same profit can carry very different tax depending on how it's structured.
Holding assets in entities and trusts — rather than your personal name — keeps ownership off the easily searched public record, reducing your visibility to opportunistic claimants and marketers.
Good fit if — you'd rather your name not sit on every property and business record.
A clean entity structure makes it far easier to gift shares, bring in partners or heirs, and pass a business on without a forced sale — the operating layer beneath your estate plan.
Why it matters — it turns "what happens to the business" into a plan instead of a crisis.
That's the point of the Angel. Tell it about your businesses, your properties, and your goals — it recommends the right structure, drafts the entities and intercompany paperwork, keeps the books clean, and connects you to a licensed attorney or CPA to finalize.
Start your profileThese are plain-language explanations for education, not legal, tax, or investment advice. Entity rules and tax treatment vary by state and change over time — the Financial Angel drafts and recommends; a licensed attorney or CPA reviews and executes.