Investors - what tax structure to use?

February 26, 2024

by an investor from Columbia University - Columbia Business School in Seattle, WA, USA

I'm thinking of investing in other self-funded searchers. For those who have invested in multiple SMB deals, have you created a separate LLC entity to invest from or do you just invest as an individual? Or are there other tax entities that are beneficial in investing in a portfolio of deals? I can see the benefit of creating a LLC and running this as a business (and deducting certain expenses like lawyer fees, etc) but was curious how people typically do it.

Obviously I'll need to consult an accountant but wanted to get some data points before I do so.

Thanks.

Reply by a professional
from Villanova University in West Chester, PA, USA

When we represent clients with respect to this, we discuss privacy, liability protection, tax planning and operational planning, all of which are key considerations for investors when structuring their investments and the organizational structure to hold their investments. It's common for individuals to hold their investments in a separate legal entity to provide privacy and liability protection. When setting up a separate legal entity for certain investments, that entity shout only hold investments of similar asset classes with similar liability profiles, such as search fund investments. Additional assets with different liability profiles, such as real estate, need to be held in separate holding companies. This approach helps mitigate risks and maintains a coherent risk and liability profile. If you have any specific questions or would like to explore this further, please feel free to schedule a complimentary consultation through the link in my bio.

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