Entity Selection Doctrine

The Default: LLC

For the vast majority of privacy-conscious business owners, the answer is LLC.

This isn't because LLCs are always optimal. It's because LLCs hit the right balance of:

• Simplicity — relatively easy to form and maintain
• Flexibility — can be taxed different ways, can have various ownership structures
• Privacy — in the right states, member names stay off public records
• Asset protection — charging order protection limits what creditors can reach
• Pass-through taxation — no double taxation like corporations

When someone asks "should I form an LLC or something else?" the doctrine is: start with LLC unless there's a specific reason to choose otherwise.

The rest of this chapter covers those specific reasons.

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When LLCs Are the Right Choice

LLCs are optimal when:

You're a Solo Operator

Single-member LLCs (SMLLCs) are the workhorse of small business. One owner, simple tax treatment (reported on your personal return), full liability protection if properly maintained.

If you're a freelancer, consultant, content creator, or solo professional, an SMLLC is almost certainly right.

You're Holding Assets

LLCs work well for holding:

• Real estate
• Vehicles
• Investment accounts (in some structures)
• Intellectual property
• Other LLCs

The LLC creates legal separation between you and the asset. Combined with privacy-friendly state formation, it also creates public record separation.

You Want Tax Flexibility

LLCs can be taxed as:

• Sole proprietorship (default for single-member) — income flows to your personal return
• Partnership (default for multi-member) — income flows to members' personal returns
• S-Corp — you pay yourself a salary, reducing self-employment taxes on remaining profit
• C-Corp — corporate taxation, rarely useful for small businesses

This flexibility means you can start simple and adjust as your income grows — without changing the underlying entity.

You Value Simplicity

LLCs have fewer formalities than corporations:

• No required board meetings
• No shareholder requirements
• No stock issuance
• Simpler operating agreements than corporate bylaws

For a privacy structure, simplicity is a feature. Fewer touchpoints means fewer places to leak information.

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When to Consider a Corporation

Corporations make sense in specific scenarios:

Venture Capital and Fundraising

If you're building a startup that will raise money from institutional investors, they'll likely require a Delaware C-Corp. VCs are structured to invest in corporations, not LLCs, due to tax and control preferences.

This has nothing to do with privacy — it's about what investors will accept.

Going Public

If there's any realistic path to an IPO, you need a corporation. Public markets don't buy LLC interests.

Specific Employee Equity Structures

If you want to grant stock options (ISOs) to employees, you need a corporation. LLCs can grant profit interests, but the mechanics and tax treatment differ.

Why Corporations Are Usually Wrong for Privacy

Corporations have structural disadvantages for privacy:

• Shareholders are owners — and shareholder records can be discoverable
• Directors and officers — these roles create more named individuals
• More formalities — more paper trail, more touchpoints
• No charging order protection — in most states, creditors can directly attach shares

A corporation might be necessary for your business goals. But if privacy is a priority and you're not venture-funded or going public, LLC is almost always better.

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The S-Corp Question

This confuses people constantly, so let's be clear:

S-Corp is a tax election, not an entity type.

You can have:

• An LLC taxed as an S-Corp
• A corporation taxed as an S-Corp
• An LLC or corporation that is NOT taxed as S-Corp

The S-Corp election affects how your income is taxed, not your privacy structure or liability protection.

When S-Corp Makes Sense

S-Corp election saves self-employment taxes. Here's how:

Without S-Corp: All your LLC profit is subject to self-employment tax (15.3% on top of income tax).

With S-Corp: You pay yourself a "reasonable salary" (subject to payroll taxes), then take remaining profit as distributions (not subject to self-employment tax).

If your LLC earns $150K and you pay yourself a $70K salary, you save SE taxes on the remaining $80K. At 15.3%, that's over $12,000/year.

When S-Corp Doesn't Make Sense

• Income under $60-80K — the administrative costs (payroll, tax filings) may exceed savings
• Irregular income — you must pay yourself consistent, reasonable compensation
• No clear "reasonable salary" — the IRS scrutinizes if you pay yourself too little

S-Corp and Privacy

S-Corp election creates more paper trail:

• Payroll filings
• W-2s
• 1120-S corporate return

None of this is public, but it's more documentation. If your privacy threat model includes deep forensic investigation, more documents means more discoverable material.

For most people, the tax savings outweigh this concern. But it's worth noting.

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Trusts: A Different Problem

Trusts are not business entities — they're estate planning and asset protection tools. But they often appear in privacy structures because they can own LLCs.

What Trusts Do

A trust is a legal arrangement where one party (the trustee) holds assets for the benefit of another party (the beneficiary).

In privacy structures, trusts can:

• Own LLCs — putting another layer between you and the entity
• Provide estate planning — assets transfer without probate
• Offer specific asset protection — depending on trust type and jurisdiction

Common Trust Types

Revocable Living Trust — you control it completely during your life, assets transfer to beneficiaries at death. Provides probate avoidance but little asset protection (you can revoke it, so creditors can reach it).

Irrevocable Trust — you give up control, which provides asset protection but limits flexibility. Often used for specific purposes like life insurance (ILIT) or dynasty planning.

Foreign Trust — established outside the US for asset protection (Cook Islands, Nevis). Complex, expensive, and aggressive — not for most people.

Trusts and Privacy: The Reality

We'll be direct: Default Privacy does not form trusts.

Trust drafting is the practice of law. It requires an attorney licensed in your jurisdiction who understands your specific situation. Generic trust templates are dangerous.

If you need a trust, work with an estate planning or asset protection attorney. The LLC structure a trust owns is straightforward to form on its own, but the trust itself requires legal counsel.

Trust drafting is attorney-led and state-specific — it is not something we do. Learn when a privacy trust fits and why it requires legal counsel.

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Series LLCs: The Specialist Tool

A Series LLC is a special structure that allows multiple "series" within one parent LLC. Each series can hold separate assets with liability isolation from other series.

How They Work

Series LLC (Parent)
    ├── Series A (Property 1)
    ├── Series B (Property 2)
    └── Series C (Property 3)

If someone sues over Property 1, theoretically only Series A's assets are at risk — not Series B or C or the parent.

Advantages

• Cost efficiency — one state filing fee instead of multiple LLCs
• Simpler management — one operating agreement, one tax return
• Liability isolation — each series is theoretically protected

Disadvantages

• Recognition issues — not all states recognize Series LLC liability isolation
• Banking complications — many banks don't understand Series LLCs or won't open separate accounts
• Uncertainty — less case law than traditional LLCs
• Complexity — operating agreement must be very precise

When to Use Series LLCs

Series LLCs make sense for:

• Real estate investors with multiple properties in states that recognize series
• Operators who need many separate liability buckets without the cost of many separate LLCs

They don't make sense for:

• Single-property situations
• Multi-state operations where series aren't recognized
• Anyone who needs simple banking relationships

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The Entity Selection Decision Tree

Here's a simplified flowchart:

Are you raising venture capital? → Yes: Delaware C-Corp (privacy is secondary to investor requirements) → No: Continue

Is this an operating business or an asset-holding entity? → Operating business: Wyoming LLC (or your home state if required) → Asset-holding: Continue

Do you have multiple assets that need separate liability protection? → Yes, many assets: Consider Series LLC (if your state recognizes them) → Yes, few assets: Separate LLCs for each → No: Single LLC

Do you earn over $60-80K net from this entity? → Yes: Consider S-Corp election (for tax savings) → No: Standard LLC taxation

Do you need estate planning or generational asset transfer? → Yes: Consult an estate-planning attorney about trusts → No: LLC structure is likely sufficient

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Common Mistakes

Forming a Corporation Because It Sounds Serious

"Inc." doesn't make you more legitimate. Corporations have more paperwork, less flexibility, and worse asset protection than LLCs for most small business purposes. Don't choose based on how it sounds.

Skipping S-Corp Election Too Long

If you're earning $80K+ net, every year you wait costs you money. Get the election done. You can always revoke it later if circumstances change.

Using a Trust When You Don't Need One

Trusts are powerful but complex. Using one incorrectly can trigger tax problems or fail to provide the protection you expect. Don't form a trust because it sounds sophisticated — form one because an attorney has told you it solves a specific problem.

Forming Multiple Entities Without Purpose

Some people form 5 LLCs thinking more layers equals more protection. But each entity is a cost (formation, maintenance, tax returns, banking). If you have one business with one asset category, you probably need one LLC — not five.

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Summary

• LLC is the default — choose otherwise only for specific reasons
• Corporations are for fundraising and public markets, not privacy
• S-Corp is a tax election, not an entity type — consider it when income exceeds $60-80K
• Trusts are estate planning tools — we don't form them; use an attorney
• Series LLCs are specialist tools — powerful for multi-property real estate, complex for everything else
• More entities isn't automatically better — match structure to actual need