Can An LLC Own Another LLC
By Bazal Razzaq
Updated: June 21, 2023
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The fascinating business world continues to evolve, breaking traditional norms and defying rigid corporate structures.
There are multiple questions a business owner has when forming an LLC (Limited Liability Company). One such question is can an LLC own another LLC, and even if it could, would it be a complicated maze-like process? Is it even legal? And most importantly, is it even a good idea for you and your LLC?
Are you looking to set up a limited liability company(LLC) and subsidiary ventures for your business lines? If you happen to stumble upon this blog, chances are you are.
Is it even possible for one LLC to own another?
The short answer is – Yes! An LLC owning another LLC is completely legal. In most states, there aren’t many restrictions on who can be the owner/member of an LLC. Doing so helps LLC owners like you keep their businesses organized and separate.
For example, you could have an LLC owning a shopping mall and another owning a restaurant. Doing different businesses under separate LLCs will help you protect the assets of each business against bankruptcy, lawsuit, and litigation.
The owner/member of an LLC can be one or more individuals and even business entities like C corps or other LLCs. You can even open an LLC where the only member is another LLC.
Simply put, anyone from US citizens and non-citizens to LLCs and corporations can all be listed as LLC members and owners. And because an LLC can own any business entity, including corporations, partnerships, and other LLCs, a Parent LLC and Subsidiary LLC are considered valid business entities.
What’s exactly a parent LLC and what’s a Subsidiary LLC? Let’s clear our terminologies before we get into the whys and hows of the matter.
- A “Parent LLC,” “Holding Company,” or “Master LLC” is a limited liability company that owns one or more subsidiaries or affiliated LLCs. Usually, a holding company does no business, like selling, manufacturing, or providing services. It just exists to control and manage the LLC it owns. To do that, it needs a huge chunk of membership interest. However, this is not to say that only a holding company can own and run another LLC. Any LLC can own a membership interest in another LLC, even one with its business operations.
- A “Subsidiary LLC,” “Daughter LLC,” or “LLC Cell” is a limited liability company that is wholly owned by another company or entity known as a Parent Company. This LLC cell has a separate legal structure and limited liability, so its debts and obligations don’t affect the parent company. Even though the holding company has full ownership and control over its LLC cell, it operates as a separate entity with its employees, management, assets, and liabilities.
Now that you know how an LLC can own another one, we can move forward with the rest.
How Can An LLC Own Another LLC?
While an LLC can acquire another one very typically in an outright manner, it’s much more normal to designate the parent LLC in some way or another. There are three main methods by which an LLC can own another: outright ownership, LLC holding companies, and series LLCs.
- Outright Ownership: The simplest way an LLC can own another LLC is through outright ownership in a traditional parent-subsidiary arrangement. Like other LLCs, other business entities can also be included because the laws are pretty flexible about who or what an LLC owner could be.
- Opening an LLC Holding Company: The main purpose of an LLC holding company is to own and manage other LLCs. You can use this holding company method and create separate LLCs for each business line(subsidiaries) and then hold them all under one holding company. It’s important to note that these holding companies don’t manage and control their subsidiaries’ daily business operations.
- Series LLC: A series LLC, also known as a Series Limited Liability Company, is the formation of a parent LLC with separate entries under the parent company. Simply put, a series LLC is a special type of LLC where you can have different parts or entries called “series” within it. Each series/entry is a mini-company within the main parent company, like maybe having separate rooms in a huge house.
The best part about a Series LLC is that each series’s debts, lawsuits, and obligations are generally set apart from those of the other series within the LLC. For example, if one series has a problem like being debt-ridden or getting sued, the other series that are a part of the parent company will not be affected or face any consequences.
There are multiple benefits of a Series LLC. For your convenience, we’re listing some of them down below:
- Protection against assets: As mentioned above, each series has separate liability protection. Each entry is shielded against the debts, obligations, and litigations of another.
- Cost Savings: A series LLC’s formation and maintenance costs are much lower than establishing multiple LLCs.
- Efficient Operations: Separate series can be managed independently, reducing administrative problems.
- Flexibility: Each series/entry has separate business purposes, investments, and members, allowing for different companies within a single entity.
- Risk Management: Liabilities are isolated between the entries so legal complications or financial problems are minimized.
However, series LLCs are only allowed in select American states:
Benefits Of An LLC Owning Another LLC?
Can an LLC own another LLC? Yes, it can. But is it a good idea? Honestly, it depends on your business. How much are you willing to spend? Would you be comfortable taking risks? If yes, then to what extent?
Some businesses benefit greatly from setting up a holding company and LLC subsidiary cells. For others, it may not be such a great idea. Here are some common benefits of an LLC owning another one, so you can decide and act better:
- Liability Protection: The topmost benefit of an LLC owning another is in the name LLC itself- limited liability. Each entry is a separate entity with its members, liability, and assets. It means that if an LLC is sued, the members/owners won’t be personally held responsible for paying any debts the LLC owes. Only the assets covered within the LLC will be considered fair game for creditors. So if you separate and spread your assets into different LLCs( all owned by the same parent company), all your LLCs can shield from one another.
- Tax Benefits: When you own a subsidiary LLC, you become eligible for many potential tax benefits. Depending on your state’s tax laws and regulations, the holding company can use taxation strategies, like balancing losses and combining financial statements.
- More Privacy: Another strong point for business owners to choose this arrangement is privacy protection. Business owners in a few states, like Delaware, New Mexico, and Wyoming, don’t need to reveal who owns the LLC. If based out of these states, this information holds very little importance for your LLC unless you set up two LLCs and list one as the owner of another.
Here’s how it goes. Let’s say your state requires you to include the names and addresses of your LLC owners on your Articles of Organisation (a public document). You can first form an LLC in a state that values privacy more (like Wyoming), where you are only required to make your registered agent’s name and address available to the general public.
Then, you can list your other LLC and your Wyoming LLC as owners. Even if someone is trying to locate your home address, they won’t find it.
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Frequently Asked Questions (FAQs)
Definitely! You can run only two but three, four, or twenty LLCs under one LLC. The only limit to this count is how many LLCs you can afford to form, maintain and manage.
You only need to open an LLC in your state and mention your current LLC as a member in your Articles of Organization document and your operating agreement. From then on, your LLC can be the only member or split ownership with another business or person.
Any LLC can become the owner of another LLC. Together they form a parent-subsidiary pattern where the holding company is the parent entity and LLC cells are the subsidiary entities.