Entity Choice Is Now a Governance Decision, Not a Tax Trick

The structure wasn’t “wrong.” It was unbelievable.

A founder sets up a holding company because it is standard. A manager uses an SPV because it is common. An operating group adds a management company because it seems tidy.

Then the first institutional counterparty asks for something simple:

Show me who controls this, where decisions are made, and why the entity exists beyond forms.

This is where the old approach fails. Many people still choose entities by headline tax features and assume governance can be added later. But the world has moved toward enforceability and transparency.

The HM Revenue & Customs company residence manual states the classic case law rule: a company resides where its real business is carried on, and where central management and control actually abides. This is the core governance principle that breaks “paper-only” structures. If decisions happen elsewhere, paperwork does not save you.

On the transparency side, the Financial Action Task Force has strengthened beneficial ownership standards and updated guidance to support implementation, emphasizing accurate and up-to-date beneficial ownership information and mechanisms to identify and verify it. And in the EU, the European Banking Authority has issued and amended guidelines on ML/TF risk factors and customer due diligence, reinforcing how financial institutions assess customer and beneficial owner risk.

So entity choice is not a tax trick. It is a governance system that must survive review from tax authorities, banks, auditors, and investors.

MARKET & CAPITAL REALITY CHECK

Why “registered address” is losing to “decision-making evidence”

The three forces changing entity choice

1. Corporate residence is substance-drivenCentral management and control is a fact question. That confirms why minutes, signatory matrices, and actual decision cadence are now underwriting inputs.
2. Treaty concepts are evolving toward enforceabilityThe OECD’s 2017 update to the Model Tax Convention was approved as part of treaty-related BEPS measures, signaling how treaty interpretation has been shaped by anti-abuse work. And the OECD’s 2025 update discusses place of effective management concepts in examples and reservations, reflecting the continued importance of where key decisions are made in substance.
3. Banking and KYC have made ownership and control operationalFATF guidance on beneficial ownership of legal persons highlights multi-pronged approaches and verification mechanisms. EBA guidelines updates show how EU institutions are expected to assess and manage customer and beneficial owner risk, which feeds into onboarding and ongoing file refreshes.

What investors and counterparties increasingly want

Even when they do not call it “tax,” their questions map to tax defensibility:

• Who owns and controls the structure?
• Where are decisions made?
• Are records consistent across banks, audited accounts, and filings?
• Is the entity doing something real, or only receiving flows?

Entity choice is now a credibility choice.

i-Invest DiagnosticOS

From diagnostic to decision-ready in minutes:
Answer a structured assessment, receive your wealth stage and risk signals, then follow a clear, personalized pathway to education, advisory, or diligence.

Get Your Wealth Stage - FREE

THE PLAYBOOK

Choose entities by function, then document governance to match

Who this playbook is for:

• founders expanding internationally
• allocators investing through SPVs and holding companies
• executives with cross-border compensation and equity holdings

Conditions that need to be true:

• you will align entity form to real function
• you will maintain governance evidence like an operating system
• you will accept that banks and investors are part of the audience

Step 1: Choose entity type by role, not by headline rate

Common roles:

• Holdco: holds shares, receives dividends, allocates capital
• Opco: signs contracts, hires people, books revenue
• IP company: owns and manages IP, contracts licensing, governs development oversight
• Investment SPV: holds a single investment with a clear purpose and clean ownership
• Management company: employs decision-makers and charges for services with clear agreements

Step 2: Build the governance requirement matrix

At minimum, every entity should have:

• decision rights and approval thresholds
• signatory matrix aligned to those rights
• board cadence and minutes discipline
• accounting and audit readiness
• a documented “why this entity exists” narrative

This is how you prevent the central management and control reality from drifting away from the paper story.

Step 3: Build a beneficial ownership and control pack that a bank can accept

Use FATF-aligned expectations:

• accurate, up-to-date beneficial ownership information
• documented mechanisms to identify and verify BO data
• consistency across documents, registries, and onboarding files

EU institutions will approach you through a risk-based lens shaped by EBA guidelines, so prepare for requests that go beyond a basic certificate of incorporation.

Step 4: Use a scorecard and refresh cadence

Entity governance decays if it is not maintained.

Set a cadence:

• annual ownership and control refresh
• annual governance minutes audit
• trigger-based refresh after major events: new shareholder, new bank, new jurisdiction, new revenue type

DEAL & PRODUCT LENS

Governance is now part of pricing

Entity choice affects:

• cost of capital: counterparties price friction and uncertainty
• execution speed: clean governance files close faster
• risk of challenge: misaligned management evidence invites scrutiny
• banking durability: weak BO packs trigger delays, limitations, or de-risking

In other words, entity choice has become an investability decision.

ACCESS & NEXT MOVES

Build structures that can explain themselves

Expert types to involve:

• fund counsel or corporate attorney (structure and governance design)
• accountant or auditor (provability, records, and cadence)
• bank onboarding lead or compliance professional (file acceptability reality)

Recommended sequence:

1. Map your current entities by function and cash flow role.
2. Rate governance readiness using the scorecard.
3. Fix signatory and decision-right mismatches first.
4. Build the BO pack and align it across banks and counterparties.
5. Add a refresh cadence.

“A structure is not what you filed. It is what you can prove.”

Key datapoints box:

• HMRC’s company residence guidance cites the De Beers case law rule: residence follows where central management and control actually abides.
• FATF revised Recommendation 24 in March 2022 and updated guidance emphasizing access to accurate, up-to-date beneficial ownership information and verification mechanisms.
• EBA amended ML/TF risk factor guidelines in January 2024, including guidance relevant to customer due diligence and beneficial owners.
• OECD updates (2017 and 2025) reflect continuing emphasis on treaty-related BEPS measures and place of effective management concepts in corporate residence examples.

SOURCES & DISCLOSURE

Key sources used: HMRC International Manual on company residence and central management and control, FATF beneficial ownership guidance (Recommendation 24 context), EBA ML/TF risk factors guidelines amendments (Jan 2024), OECD updates to the Model Tax Convention (2017 update and 2025 update). (GOV.UK)

Standard I-Invest disclosure: This article is informational and not legal, tax, or investment advice. Seek independent professional advice.