Can an LLC own another LLC?

Have you considered setting up a limited liability company (LLC) and subsidiary companies for your business lines? You’re probably wondering: can an LLC own another LLC? Is that legal? If so, is it a good idea for you?

LLC Owning Another LLC

An LLC owning another LLC is perfectly legal. The LLC’s owner (referred to as a “member” in an LLC) can be one or more individuals and/or business entities like C corporations or other LLCs. You can even form an LLC where the only member is another LLC. 

Why would an LLC want to own another?

It’s not uncommon for a business owner to have multiple lines of business. The owner mitigates some risks by forming a parent LLC and subsidiaries. If one line of business fails as a subsidiary, it won’t impact the other businesses. If a parent company owns at least 80% of its subsidiaries, it can offset one business line’s profits against another’s losses.

Any company with distinct types of businesses or business ventures with different risk levels could consider using an LLC to own others. However, states charge filing fees, and each LLC requires its own paperwork, including tax forms. Additionally, if the parent company is sued, all assets are at risk, including any LLCs owned.

How can one LLC own another?

While it’s true that one LLC can simply own another outright, it’s much more common to specifically designate the parent company in some way. One LLC can own another in three primary ways: outright ownership, LLC holding companies, and series LLCs.

Outright Ownership

The simplest way for an LLC to own another LLC is through outright ownership in a parent-subsidiary LLC structure. Because the laws are so flexible about who or what can own an LLC, they also include business entities, like other LLCs, to be owners.

Setting up an LLC Holding Company

A holding company, or parent LLC’s, purpose is to own other companies. With the holding company method, you make separate LLCs for each line of business (subsidiaries) and own them all under a holding company. Holding companies don’t actively manage their subsidiaries’ daily operations.

What is a series LLC?

A series LLC is the formation of a parent company with designated separate series entries under the parent. Although similar to a holding company, a series LLC doesn’t require each entry to file documents separately. When you start a series LLC, it must state in its Articles of Organization that it’s allowed to form a series. However, series LLCs are only allowed in certain states:

• Delaware
• Illinois
• Iowa
• Nevada
• Oklahoma
• Tennessee
• Texas
• Utah
• Wyoming

Benefits of a Series LLC

There are a few benefits to a series LLC. The main benefit is that each LLC in the series LLC is shielded from the liabilities of the other LLCs in the series. This can especially benefit companies like real estate businesses that own more than one property and want to protect each property from the liabilities of the others.

Business owners of a series LLC only need to pay the state fees for one business, so they save money by avoiding those additional costs. But each LLC in the series must still be treated as a separate company with its own name, financial records and accounting, and business bank account. 

DBAs versus Subsidiary LLCs

A DBA (or doing business as) name is not a separate company. It’s a name that your company can do business as that differs from the business’s legal name. Conversely, subsidiary LLCs are completely different entities.

DBA names are much simpler to establish than subsidiary LLCs. Depending on your state, it could be as easy as filing a name and paying an initial filing fee. DBAs require very little paperwork to start up, change the name of, or shut down the line of business. However, because DBAs aren’t separate legal entities, all obligations and lawsuits directly affect the parent company’s personal assets.

Subsidiary LLCs, on the other hand, are separate entities, so they require much more paperwork and administrative costs than DBAs. You’ll need to file for distinct Employer Identification Numbers, separate operating agreements, and other essential information. However, this distinction has many advantages, like sharing ownership with another company and liability protection from lawsuits filed against the subsidiaries.

How many DBAs can an LLC have?

The number of DBAs an LLC can have depends on individual state laws. For example, an LLC can have as many DBAs as it wishes in California.

Managing Taxes

LLCs have pass-through taxation, meaning they have a few options for federal tax purposes. They can be taxed as a disregarded entity (like sole proprietorships and partnerships are), an S corporation, or a C corporation. C corporations must pay corporate income tax on profits, which are taxed a second time when distributed to shareholders.

S corporation status lets your LLC avoid double taxation by only being taxed at the individual level, but other LLCs can’t own S corporation LLCs. Series LLCs are treated as single entities for federal tax purposes, so you only need to file one federal tax return. At the state level, the legal requirements for tax documents vary.

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Disclaimer: The content on this page is for informational purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.