Investing Through an Entity: LLC, Trust, and IRA Structures

Common goals

Three motives account for most entity investing. Estate planning: a trust can hold shares so that they pass to beneficiaries under terms the grantor sets, without probate. Asset protection: an LLC can separate an investment from an investor's personal balance sheet, subject to the limits state law imposes. Tax planning: a self-directed IRA can hold private shares in a tax-deferred or tax-exempt wrapper, so that gains inside the account aren't taxed when they occur.

A fourth motive is simpler: some investors already have an entity, and it's where their other alternative investments live. Consolidating in one place makes recordkeeping easier.

Entity investing in private markets

Private markets add a wrinkle. Shares in a private company are restricted securities, transfers require the issuer's cooperation, and the platform facilitating the trade has to verify the entity and the people behind it. A structure that's routine for holding public stock can generate real friction when the asset is a block of pre-IPO shares. That's the tradeoff to keep in view: the benefit of the structure against the administrative weight it adds to each transaction.

How LLC investing works

The LLC buys the shares and appears on the company's cap table as the shareholder. The investor, and anyone else who's part of the arrangement, holds a membership interest in the LLC. It's the same logic as an SPV, which is itself usually an LLC, except that here the investor controls the entity rather than a third-party manager. The guide to SPV vs. direct investment covers that distinction in more depth.

A single-member LLC is usually disregarded for federal tax purposes, meaning gains and losses flow straight to the owner's return as if the LLC weren't there. A multi-member LLC is taxed as a partnership by default and files its own informational return, with each member receiving a K-1.

Potential considerations

Formation is cheap and fast in most states, but maintenance is ongoing: annual reports, state fees, a separate bank account, and in some states a franchise tax regardless of income. The operating agreement matters more than most investors expect. It governs who can authorize an investment, how proceeds are distributed, what happens if a member wants out, and who signs the share purchase agreement. A platform onboarding the LLC will read it to identify managers and beneficial owners, so an agreement that's vague on ownership percentages will slow verification down.

How trust investing works

A trust holds assets for the benefit of named beneficiaries, managed by a trustee under the terms of the trust agreement. When a trust buys private shares, the trustee signs the transaction documents and the trust is recorded as the shareholder. Beneficiaries hold no direct interest in the shares; their rights run through the trust.

Common trust types

The distinction that matters most is revocable versus irrevocable. A revocable living trust can be changed or dissolved by the grantor at any time. For tax purposes it's generally transparent: income and gains are reported on the grantor's personal return. Its main benefit is avoiding probate and providing continuity if the grantor becomes incapacitated. An irrevocable trust cannot be freely amended once established. Assets placed in it are generally removed from the grantor's estate, which is why it's used for estate tax planning and asset protection, and it may be taxed as a separate entity at compressed trust rates.

For verification purposes, a platform will typically ask for the trust agreement (or a certificate of trust), the trustee's identification, and, depending on the structure, identification of grantors and significant beneficiaries.

How a self-directed IRA works

An IRA is permitted by the tax code to hold most types of assets. What limits a conventional IRA is the custodian, which typically only supports publicly traded securities. A self-directed IRA uses a custodian that will hold alternative assets: private company shares, fund interests, real estate. The custodian holds title to the asset on the IRA's behalf, processes the purchase, and reports the account's value to the IRS. The investor directs the investment; the custodian executes it.

This is the route people mean when they search for IRA alternative investments or self-directed IRA private equity. The appeal is straightforward: gains on a private investment that plays out over years accrue inside the account without annual taxation, deferred until distribution in a traditional IRA and potentially tax-free in a Roth. Retirement accounts have drawn more attention as a home for private assets since the 2025 executive order opening 401(k) plans to alternatives, though that order concerns employer plans, not IRAs, and the self-directed IRA route predates it by decades.

Rules and restrictions

The rules are where self-directed IRAs get complicated, and where mistakes are expensive.

Prohibited transactions. Under Internal Revenue Code Section 4975, an IRA cannot transact with "disqualified persons," a category that includes the account owner, their spouse, ancestors, lineal descendants, and entities they control. The IRA can't buy shares from you, sell shares to your child, or invest in a company you own 50% of. A prohibited transaction can disqualify the entire IRA, making the full balance taxable as a distribution in that year.

Custodian requirements. The custodian must be an IRS-approved trustee or custodian, typically a bank, trust company, or other approved entity. The IRA owner cannot personally hold title to the asset. Custodians charge fees, often per asset and per transaction, and each has its own document requirements for accepting a private investment.

UBIT considerations. IRAs are tax-exempt, but not without limit. Income from an active trade or business held through a pass-through entity, or income from debt-financed property, can be subject to unrelated business income tax. Direct ownership of C-corporation stock, which is what most venture-backed companies issue, generally doesn't trigger UBIT. Investing through certain fund or LLC structures might. This is a question for a tax adviser before the investment, not after.

Valuation. Custodians must report the IRA's fair market value annually, and private shares don't have a daily price. Investors may need to supply a valuation, which can mean cost or a recent 409A, depending on the custodian's policy.

Control and administration

An LLC gives the investor direct control, subject to the operating agreement, and the administrative burden to match. A trust puts control in the trustee's hands, which may be the investor (revocable) or a third party (often irrevocable). A self-directed IRA splits the roles: the investor directs, the custodian holds and processes, and the investor never touches the asset.

Tax treatment

An LLC is generally a pass-through: gains are taxed to the members in the year realized, at capital gains rates that depend on holding period. A revocable trust is taxed to the grantor; an irrevocable trust may be taxed as its own entity. An IRA defers tax on gains until distribution (traditional) or eliminates it on qualified withdrawals (Roth), at the cost of ordinary income treatment on traditional distributions and the loss of favorable capital gains rates and any QSBS exclusion that direct ownership might have provided.

Setup and ongoing requirements

LLC: formation filing, operating agreement, annual state compliance, separate books. Trust: drafting by an attorney, funding, trustee administration, possibly a separate tax return. IRA: custodian account opening, custodian fees, annual valuation reporting, and strict adherence to prohibited transaction rules. None of these is prohibitive. All of them are real, and they persist for as long as the entity holds the asset.

Eligibility and accreditation at the entity level

Accreditation is tested at the entity level, separately from the person behind it. An LLC or trust generally qualifies as an accredited investor if it has more than $5 million in assets and wasn't formed for the specific purpose of making the investment, or if every equity owner is individually accredited. A revocable trust can typically qualify through its grantor. An IRA generally qualifies if the account owner does. The accredited investor guide covers the underlying tests.

Custodian and documentation requirements

Before committing, confirm what the custodian (for an IRA) and the platform (for any entity) will need: formation documents, tax ID, beneficial owner identification, signatory authority, and for IRAs the custodian's own investment direction forms. Confirm too that the custodian will accept the specific asset. Some won't hold shares in certain structures or below certain minimums.

Professional guidance

Every structure here carries legal and tax consequences that depend on the investor's state, estate, and existing holdings. This guide describes how the structures work; it doesn't say which one fits. That's a conversation with an attorney and a tax adviser, ideally before the first investment rather than at the first sale.

Augment's private marketplace accommodates common entity and account structures, including LLCs, trusts, and self-directed IRAs, and guides investors through the documentation each one requires at onboarding: formation records, trustee or manager identification, and beneficial ownership information. For IRA investors, Augment supports accounts held at IRA Financial, Alto IRA, Rocket Dollar, IRA Club, and IRA Trust Company, and investors whose custodian isn't on that list can enter it during onboarding. Accreditation is verified at the entity level, with support for the routes an entity can use to qualify. Investors participating in the pre-IPO investment platform through an entity go through the same process, so that the entity itself, and not only the individual, is cleared to hold interests in pre-IPO companies.

Augment does not provide legal or tax advice and does not recommend one structure over another. Its role is to make sure the structure you've chosen, with your advisers, can complete a transaction cleanly.