What protections does the two entity 99% member / 1% manager structure offer? It must have some huge benefit, if they're doing it all the time like this
Although I have no specific knowledge of what Trump's goals are, I would suspect that this structure is intended to make it more difficult for creditors to get money out of these entities.
One of the major differences between a
limited liability company ("LLC") and a
joint-stock company ("corporation") is that a corporation has shares while an LLC does not have shares. If a creditor C has a judgment against an entity E that owns 99% of Q Corp, the court can simply order the entity E to turn over its shares in Q Corp to the creditor C, or to sell the shares and pay the proceeds to the creditor C. By contrast, if the entity E owns no shares and instead has a 99% membership interest in W LLC, there are no shares to be sold, so the creditors can only levy on any moneys flowing out of W LLC to the entity E (a "charging order"). The trick here is that W LLC is fully managed by the 1% owner, namely W Managing Corp. Under the documents governing W LLC, W Managing Corp has full discretion about whether to cause any money to flow out of W LLC to the 99% owner, entity E. Thus, W Managing Corp will simply decline to cause any money to flow to entity E so the charging order is not effective at getting money out of W LLC.
This scheme is, of course, not bullet proof. The creditor C will craft other arguments to try to get their money. For example, the creditor might argue that W Managing Corp is in fact a sham and that entity E really has full control over and full ownership of W LLC, despite what the documents say. To defend against that argument, the various separate entities will have been carefully crafted to have wholly separate operations and legitimate independent reasons for existing, such as articulable business purposes for their specific existences.
The reason for having so many layers of entities is presumably to further increase the difficulty for creditors wanting to get money out of these entities, as creditors will need arguments to get past each new layer.
Why would the more recent manager entities be corps instead of LLCs?
I'm not aware of any obvious reason why corporations would be preferable, but it might be to inject diversity into the hierarchy to make it harder to argue that the various entities are shams. It might also be that the jurisdictions where these entities are incorporated have some specific case law that is unfavourable to creditors, but the cases are specific to corporations. Keep in mind that corporations are a much older company structure than LLCs, so there is a lot more case law about corporations. There is much more uncertainty about the law of LLCs, by comparison.
What possible ways could I apply this to my own business (low six figures, software consulting and publishing)?
One thing you should understand is that all of the discussion above is unrelated to taxation under the
Internal Revenue Code ("IRC"). There is a lot of confusion on this point, but as a general rule, the legal nature of the entity is not determinate of how it is taxed. In the IRC, the term "corporation" means basically any association of persons with a profit motive, including associations that are in fact not "joint-stock companies" (what I've called "corporations" above). In general, the choice of entity is not a taxation choice, because taxation choices can generally be made independently of the type of entity.
As described above, the asset protection advantages of the Trump-style structure relies in part on you being able to articulate a valid business reason for the various separate entities, such that they are not just shams. You may find that difficult to do in a very small business.
