Good morning! 

The week is flying by—here are three things to not miss in the rush:

1. Want Outside Capital? You Need a Holding Company. (5 min read)

2. The Government’s Crypto Play: What It Means for You. Ignore digital assets at your own risk—here’s why.
   (1 min read)

3. A Corporate Transparency Act update. YES, another one. It might be dead but why is it still wiggling? (1 min read)

Let’s get you set to raise capital and finish the week strong!

-TCoL

Missed our last feature article? “Revive Your Stagnant LinkedIn Company Page”

Read it here.

Launching a successful startup involves a whirlwind of smart decisions, from choosing the right business structure to attracting investors. One often-overlooked but powerful strategy is using a holding company—an entity that owns your startup instead of you directly.

Sure, you need a great product, team, and execution to attract the attention of outside investors. But a holding company structure can help keep your capitalization table (cap table) clean and make future funding rounds smoother. However, it’s not without its downsides. Let’s dive into the details.

A Cleaner Cap Table = Fewer Headaches for Investors

Investors love simplicity. If your startup is owned by multiple founders, early employees, and advisors, your cap table can look like a tangled mess of shareholders. A holding company consolidates all that into a single entity, leaving your startup with just one owner—the holding company.

Benefit: When VCs and PEs review your cap table, they see a straightforward structure instead of a dozen individual shareholders. That’s less due diligence work for them and fewer red flags.

Flexible Equity Distribution Without Cap Table Clutter

With a holding company, you and your co-founders can distribute ownership within the holding entity instead of the startup itself. That means if one founder leaves or new partners come in, you adjust ownership inside the holding company—without touching the startup’s equity structure.

Benefit: No need to amend the startup’s records or alarm investors when internal equity shifts happen. The startup’s cap table stays pristine, leading to a shorter due diligence period and cleaner transaction.

One Tax Return Instead of Two

If your holding company owns 100% of your startup and is classified as a disregarded entity for tax purposes (e.g., a single-member LLC or an S corp with a sole shareholder), the IRS ignores it. That means you don’t have to file a separate tax return for the startup—it all flows through the holding company.

Benefit: Less paperwork, lower accounting fees, and a simpler tax season.

Protection from Personal Liabilities

Life happens. If a founder faces personal financial trouble—bankruptcy, lawsuits, or even divorce—creditors might try to claim their startup shares. But if ownership is inside a holding company, it’s harder for outsiders to disrupt the startup’s ownership structure.

Benefit: Your startup might remain untouched, even if personal financial storms hit.

Smoother Transition to PE or VC Investment

Some institutional investors want startups to convert to a Delaware or Nevada entity before investing. If your startup is owned by a holding company, this transition is easier—one entity (the holding company)/one shareholder negotiates and executes approvals for the conversion, rather than multiple individual shareholders with differing opinions.

Benefit: Less friction, faster conversion, and a deal that closes quicker.

More Options for Delivering Working Capital

With a holding company in place, the founders then have the option of delivering working capital to the startup in return for shares of stock or in the form of a properly structured loan.

Benefit: Options are good. Some founders prefer loans over additional stock because of immediate returns and the fact that a properly structured loan can be paid back tax-free when the startup raises additional money or gets acquired (however, loans from holding companies need special attention from your tax advisor to be structured properly).

The Downsides of Using a Holding Company

Two Sets of Accounting Books

Your startup and your holding company are separate legal entities. That means two sets of books to maintain. Even if your holding company is simple, this still adds administrative overhead.

Cost: More bookkeeping work or higher accounting fees.

Annual Reporting Costs

Most states require LLCs and corporations to file annual reports and pay associated fees. If you have a holding company and a startup, you’re doubling these costs.

Cost: Two state filings, two sets of fees, and potentially two registered agents if your entities are in different states.

Potential Tax Complications If Not Set Up Correctly

While a disregarded entity simplifies taxes, if your holding company is a multi-member LLC, you’ll need to file separate tax returns. That could mean extra tax prep work, additional state filings, and higher compliance costs.

Cost: More tax returns, potential self-employment tax issues, and state-level complexities.

Which Structure Is Right for You?

Go with a Holding Company if: 

You plan to raise outside capital and want a clean cap table.

You have multiple co-founders and want flexibility in distributing equity.

You want to protect the startup from personal liabilities.

Stick with Direct Ownership if: 

You’re seriously bootstrapping and want to keep costs low.

You don’t expect to raise money from VCs or PEs anytime soon.

You’d rather not deal with two sets of financial books.

Worth It or Not?

For startups planning to scale and attract outside capital, a holding company is a strategic move. It makes your cap table investor-friendly, simplifies future transactions, and adds a layer of protection. However, it does introduce some extra costs and administrative work.

If you’re just starting out and cash is tight, direct ownership may be the simpler choice—for now. But if outside money or a clean exit is your endgame, setting up a holding company early can save you restructuring pain down the road, not to mention extra time during the due diligence phase of your transaction.

A Final Word of Advice

We know a group of founders that formed a holding company for their startup. Desperate for cash at times, it let investors in at both levels—holding and startup. The result? A tangled “equity salad” that delayed and nearly killed its eventual sale.

Learn from their mistake. Keep your cap table clean, or one day, it might eat your deal.

Would you like a simple “manager-managed” Operating Agreement template for your LLC that allows for a holding company structure? Subscribe to The Co. Letter ^TM Premium here and get it for free along with all templates provided with our articles. Be smart, save money, get things done.

The Government’s Crypto Play: What It Means for You.

President Trump’s announcement of a U.S. Crypto Strategic Reserve marks a potential shift in how digital assets integrate into the economy. Crypto isn’t just for investors anymore—it’s inching toward practical business use.

What does this mean for you? A few key areas to watch:

Payment Options: As crypto gains regulatory clarity, businesses that accept digital payments early could gain an edge and attract new customers.

Treasury Management: With inflation a constant concern, crypto may soon offer small and mid-sized businesses new ways to invest and manage cash reserves.

Supply Chain Tracking: The blockchain tech behind crypto could streamline recordkeeping and contract verification.

This isn’t a call to bet the business on Bitcoin or other altcoins. But it is time to get smart on digital assets. Spend some time learning the basics, talk to experts, and stay informed.

Crypto is evolving from speculation to utility—and business owners who prepare now won’t be left scrambling later. Remember when you could have bought Bitcoin for $100? There will be plenty of new opportunities for business owners–don’t miss out this time!

Old Business:

CRITICAL UPDATE: The Corporate Transparency Act

What is the new update?
On 27 February 2025, the U.S. Treasury’s Financial Crimes and Enforcement Network (FinCEN) issued new guidance stating that, for now, “[i]t will not issue any fines or penalties or take any other enforcement actions against any companies based on any failure to file or update beneficial ownership information (BOI) reports pursuant to the Corporate Transparency Act (CTA) by the current deadlines” (which is 21 March 2025). Read the full guidance document here.

Then, President Trump posted this:

Note that it says, “for U.S. Citizens.” That means that there is still some life (and applicability) left in the CTA for non-citizens.

What is the CTA?
The CTA is a 2021 federal law requiring all U.S.-formed or registered entities to either confirm they qualify for an exemption or submit a BOI to FinCEN.

I already filed—now what?
You’re set. No further action needed.

Can I file voluntarily while the CTA is on hold?
Yes. FinCEN is accepting early filings. You can submit yours here. No penalty for waiting, but beware: FinCEN’s system is new and may get overwhelmed as the deadline nears.

Will the new Trump administration scrap the CTA?
Likely for U.S. domestic entities but NOT for foreigners that own businesses in the U.S. Upcoming rule making and current litigation could lead to significant changes. Also, the small business lobby is out in full force putting pressure on the Trump Administration and lawmakers to do away with the CTA or significantly restrict its applicability.

We’ll keep tracking this. If you spot a reliable update before we do, reply or DM @thecoletter on X or LinkedIn.

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