I get this question more times than you may think. Before I give you some pointers, please understand that I am NOT a tax attorney and that everyone’s circumstances are different. The correct answer could also depend on what state you’re in, your specific factual circumstances and even what industry you’re in and what you do.

Therefore, please consult with a local CPA or Accountant related to this, to double-check what I am suggesting and make sure it fits with your unique and specific circumstances.

With that said, what I’m about to address is the following situation (this is for all states, EXCEPT California):

    You –> (own) A parent holding company (typically an Anonymous LLC)

      –> (which owns) A child operating company (typically a local LLC formed in your state of residence)

The question is, how do you move money between you and the child operating company?

The answer depends on whether you need to put money in or take money out.

How to Put Money In a Child Operating Company

Does the child operating company need a …

  • Loan? Then you can loan money directly, but put some sort of reasonable promissory note together. You’re acting as a finance company to the child operating company almost like a bank. You can do this directly.
  • Capital contribution? This is different. You personally don’t own the child operating company. Only owners can do this, so you would either loan (or make a capital contribution) to the parent holding company, which would in turn, use that money to make a capital contribution itself to the child operating company.

Same issues taking money out of the child. You have a number of options are available, depending on the circumstances:

  • Pay you 1099 income. It can pay you, or anyone, for 1099-based contracting services. Please double-check with your CPA / Accountant, because there are rules around 1099 versus W2 payments.
  • Pay you W2 income. Same as above.
  • Pay distributions. Distributions can only be paid to owners, and you’re not an owner. The parent holding company is. Therefore, the child operating company can pay the parent holding company a distribution, then you have the same analysis for the parent holding company in how to get money out of it.

Again, please consult with a CPA or accountant to determine what is the best method, given your unique circumstances.

What About California?

California is different, because CA can require registration of the parent holding company in many circumstances (see Doing Business in California), and when that happens, the anonymity of the parent LLC can become destroyed.

Therefore, we recommend a different structure for California:

    You –> (own) A parent MANAGEMENT company (typically an Anonymous LLC)
    You –> (own) A child operating company (A regular LLC formed in CA), which is MANAGED by the parent management company

In this scenario, the Anonymous LLC is a management company, not a holding company. As a management company, NO REVENUE passes through the Anonymous LLC at all. This means no taxes, profits or losses to worry about. All such concerns happen at the child level.

The tips above then change, and everything revolves around the child LLC. You put money into the company either through a loan or a capital contribution directly. YOU OWN THE CHILD.

You take money out either as 1099 income, W2 income or as a distribution directly to you. Again, because you own the child.


  1. Hi Larry, great article!

    For California Regarding “You take money out either as 1099 income, W2 income or as a distribution directly to you. Again, because you own the child.”

    How would I take money out as a distribution directly to me?

    1. Hi, Stacey.

      We need to update this article, because it’s not exact for CA folks. In CA, you will own the CA LLC directly, so therefore you will take the money out of the CA LLC directly (using one or more of the same methods we say in this article for the parent). In CA, the parent doesn’t own the child, it only manages the child, so no money would be moving from the child to the parent.


Leave a reply

Your email address will not be published. Required fields are marked *