US entity types for ABF

Your choice of legal entity determines governance requirements, formation costs, investor familiarity, and regulatory treatment. While tax classification is a separate decision, entity type constrains your options and signals to investors what kind of structure they’re evaluating.

This page covers the four entity types you’ll encounter in virtually every ABF transaction.

Delaware LLC

The default choice when you’re not sure, and often the right one for simple structures.

Why Delaware

Delaware dominates for several reasons:

Well-developed LLC law with extensive case precedent
Chancery Court expertise in commercial disputes
Predictable outcomes, sophisticated judges
No state income tax on entities without Delaware operations
Series LLC option for isolating asset pools

Formation and maintenance

Formation costs: $1,000-$3,000 including legal fees

State filing fee: $90
Registered agent: $50-$300/year
Operating agreement drafting: $500-$2,000

Annual costs:

Franchise tax: $300 flat fee
Registered agent renewal: $50-$300
Minimal ongoing legal (unless disputes arise)

Timeline: Same-day filing available, typically operational within 1-2 weeks including bank account setup.

Governance characteristics

LLCs offer maximum flexibility:

Operating agreement controls everything
No required board meetings or minutes
No required annual meetings
Managing member or manager-managed options
Custom distribution waterfalls possible
Amendment requires only member approval (per operating agreement)

This flexibility cuts both ways. With no statutory requirements, the operating agreement must address every contingency. Poorly drafted operating agreements create problems that wouldn’t arise in more structured entity types.

Tax classification options

A Delaware LLC can be taxed as:

Disregarded entity (single-member): No separate tax return, income flows to owner
Partnership (multi-member default): Form 1065, K-1s to members
C-corporation (by election): Form 1120, entity-level tax
S-corporation (by election, if eligible): Form 1120-S, pass-through with limitations

The check-the-box election (Form 8832) allows you to choose corporate taxation. This election is irrevocable for 60 months and has consequences for existing investors.

When to use Delaware LLC

Ideal for:

Single-investor warehouses where flexibility matters
Depositor entities in multi-tier securitizations
Holding companies and intermediate entities
Situations requiring custom governance
Blocker entities (with corporate election)

Examples:

Warehouse facility: Originator forms LLC, capital partner provides debt
Depositor: LLC purchases assets from originator, contributes to trust
Management company: LLC holds servicing rights or residual interests

When to avoid Delaware LLC

Problematic for:

Rated term securitizations (statutory trust is market standard)
Structures requiring auto-pilot governance (trust is cleaner)
Deals targeting insurance investors unfamiliar with LLC form
Situations where corporate formalities provide useful discipline

Delaware statutory trust

The workhorse of rated securitization. Almost every term ABS deal uses a Delaware statutory trust as the issuing entity.

Why statutory trust dominates securitization

The Delaware Statutory Trust Act (1988, amended 2002) created an entity designed specifically for passive holding:

Trust exists to hold assets and make distributions
No active management decisions required
Operates mechanically per trust agreement
Owner trustee (Delaware trust company) provides legal existence
Minimal governance reduces operational risk

Rating agencies and investors expect this structure. Using a different form requires explanation.

Formation and maintenance

Formation costs: $3,000-$8,000

State filing fee: $500
Owner trustee acceptance fee: $1,500-$3,000
Trust agreement drafting: $1,000-$3,000

Annual costs:

Owner trustee fee: $2,000-$5,000
No Delaware franchise tax (covered by owner trustee relationship)
Administrative agent fees may apply

Timeline: 2-4 weeks to operational status, longer if customized terms needed.

Governance characteristics

Minimal to the point of automatic:

No board, no managing member, no general partner
Owner trustee holds legal title but has no discretion
Trust agreement specifies every action mechanically
Distributions per waterfall, no deviation possible
Amendment typically requires investor consent

This rigidity is a feature, not a bug. Investors know the trust will do exactly what the documents say. No management team can make unexpected decisions.

Tax classification options

A Delaware statutory trust can qualify as:

Grantor trust: No entity-level tax, investors treated as owning assets directly
Owner trust: Similar to grantor trust with different ownership attribution
Partnership: More flexibility but K-1 complexity
REMIC: For mortgage assets with multiple tranches

The structure of the trust and the assets it holds determine which classification is available.

When to use statutory trust

Ideal for:

Term securitizations (ABS, MBS, CLOs)
Rated note issuance
Deals targeting insurance company investors
Structures requiring maximum bankruptcy remoteness
Any situation where passive, mechanical operation is the goal

Examples:

Auto loan ABS: Trust issues rated notes backed by auto receivables
RMBS: Trust holds mortgages, issues multiple tranches
Equipment ABS: Trust holds equipment leases

When to avoid statutory trust

Problematic for:

Structures requiring active management (partnership or LLC better)
Single-investor warehouses (LLC is simpler and cheaper)
Situations where frequent asset modifications are expected
Deals where governance flexibility matters

Delaware LP

Less common in pure ABF but useful when you need explicit separation between management and investors.

Structure requirements

A Delaware LP requires:

General Partner (GP): Manages the LP, has unlimited liability
Limited Partners (LPs): Passive investors, liability limited to investment

The GP is typically itself an LLC or corporation, limiting the individuals’ exposure.

Formation and maintenance

Formation costs: $2,000-$5,000 plus GP entity

State filing fee: $200
GP entity formation: $1,000-$2,000
Partnership agreement drafting: $1,000-$2,500

Annual costs:

Franchise tax: $300
GP entity maintenance: $300-$1,000
Registered agent: $50-$300

Timeline: 2-3 weeks including GP entity formation.

Governance characteristics

More formal than LLC, less rigid than trust:

GP has management authority and fiduciary duties
LPs have limited governance rights
Annual meetings may be required depending on agreement
Clear separation between management and capital

Tax treatment

LPs are taxed as partnerships by default:

Form 1065 filed annually
K-1s to all partners
Corporate election possible but rare
Pass-through of income, deductions, credits

When to use Delaware LP

Ideal for:

Fund structures where GP economics matter
Situations requiring clear manager/investor separation
Structures where LP interests will be syndicated
Deals with sophisticated institutional LPs

Examples:

Credit funds with ABF strategy
Co-investment vehicles alongside funds
Management company structures

When to avoid Delaware LP

Problematic for:

Most securitizations (statutory trust is standard)
Simple warehouses (LLC is cleaner)
Situations where GP liability is a concern

Corporation (C-corp or S-corp)

Corporations are rarely the issuing entity because of double taxation, but they’re essential as blockers.

C-corporation characteristics

Entity-level taxation at 21% federal rate
No restrictions on ownership
Dividends taxed again to shareholders
Perpetual existence
Stock-based ownership with clear transferability

S-corporation characteristics

Pass-through taxation (no entity-level tax)
Ownership restrictions: 100 shareholders maximum, no non-US shareholders, no entity shareholders (with exceptions)
Single class of stock only
Limited utility for ABF structures

Formation and maintenance

Formation costs: $1,000-$3,000

State filing fee: $89 (Delaware)
Certificate of incorporation drafting: $500-$1,500
Initial bylaws: $500-$1,000

Annual costs:

Franchise tax: Variable, based on authorized shares or assumed par value method
Simple corporations: $400-$1,000
Complex capital structures: Can exceed $100,000
Annual report: $50

Tax return: Form 1120 (C-corp) or Form 1120-S (S-corp)

When to use corporations

Blocker entities:

Tax-exempt investor needs to block UBTI from leveraged pass-through
Non-US investor needs to block ECI from US business activities
Corporation holds the pass-through interest, pays entity-level tax, distributes dividends

REIT election:

Corporation elects REIT status
No entity-level tax if 90%+ of income distributed
Complex requirements, significant compliance burden
Works well for real property income

Cost-benefit of blocker

Using a C-corp blocker:

Formation: $5,000-$15,000
Annual maintenance: $5,000-$15,000
Tax leakage: 21% of pass-through income

This tax leakage is the cost of avoiding UBTI (which would be taxed at up to 37%) or ECI (which triggers filing requirements plus tax).

Choosing between entity types

Decision matrix

Factor	LLC	Statutory Trust	LP	Corporation
Formation cost	Low	Medium	Medium	Low
Governance flexibility	High	None	Medium	Medium
Investor familiarity (securitization)	Medium	High	Low	Low
Tax flexibility	High	Medium	Low	Low
Management discretion	High	None	GP only	Board
Bankruptcy remoteness	Good	Excellent	Good	Good

Common patterns

Warehouse facility:

Single Delaware LLC
Capital partner provides debt
Originator manages and holds equity

Term securitization:

Delaware statutory trust as issuer
Delaware LLC as depositor
Corporation as blocker (if needed)

Credit fund:

Delaware LP as main vehicle
LLC as GP
Statutory trust for any term takeouts

Formation timing

Plan entity formation before you need it:

Warehouse: Form LLC when negotiating term sheet
Term ABS: Form trust 4-8 weeks before closing
Offshore: Allow 6-12 weeks for Cayman or Ireland vehicles

Rush formation is possible but expensive. Same-day service adds $500-$1,000 to costs.

Working with counsel

Entity selection should be a collaborative discussion:

Come to counsel with investor constraints identified
Understand the trade-offs before the call
Ask about maintenance costs, not just formation
Confirm tax classification before finalizing entity type
Get cost estimates for alternatives

Don’t delegate this decision entirely to counsel. They’ll give you a defensible answer, but not necessarily the optimal one for your specific investor base.