Can an LLC Own Another LLC?
Yes, an LLC can own an LLC. In most states, there aren’t many limitations on who can be an owner of an LLC. US citizens, non-citizens, LLCs, and corporations can all be listed as LLC members/owners. In most states, members are listed on the LLC’s Articles of Organization, and they should always listed within the LLC’s operating agreement. An LLC that owns another LLC is sometimes called a holding company, and the LLC owned by the holding company is called a subsidiary. Here’s how it works.
In this article, we'll cover:
Holding Companies and Subsidiaries
An LLC that exists just to own other companies is called a holding company. Usually, a holding company LLC doesn’t do any true business on its own—that is, selling, manufacturing, or providing services. The holding company typically exists just to control the LLCs it owns (called LLC subsidiaries). To control the LLC, the holding company just needs to own a majority of the membership interest.
However, any LLC can own membership interest in another LLC—even one that has business operations of its own.
In a little over a dozen states, you can start a special type of LLC called a series LLC. Series LLCs are similar in structure to a holding company with LLC subsidiaries, but typically require less paperwork and fewer fees.
In a series LLC, there’s a parent or umbrella LLC with one or more divisions within itself. Each of these divisions—called series—has its own finances, operating agreement, and liability. This means that if one of the series is sued or goes bankrupt, the parent LLC and any other series within it are unaffected. Say that your LLC owns several rental properties, each within its own series, and a tenant sues. If you’ve set up and properly maintained your series LLC, only the assets held by that particular series are at risk. Assets held by the other series (in this case, the rental properties) are unaffected.
The benefit of starting a series LLC over a holding company with subsidiaries is that usually, you don’t need to file separate Articles of Organization and periodic reports for each series (as you would for each LLC). This means less paperwork and fewer fees.
The process for starting a series LLC varies by state, but typically, it’s not that different from setting up a traditional LLC. You’ll appoint a registered agent, file Articles of Organization, and pay a filing fee. In some states, you’ll just check a “series LLC” box on your Articles of Organization, while in other states, you file special Series LLC Articles of Organization.
Benefits of an LLC Owning Another LLC
So you know that an LLC can own another LLC. But is it a good idea?
It depends on your business. How much risk are you comfortable with? And how deep are your pockets? Some businesses have a lot to gain from setting up a holding company and LLC subsidiaries. For others, it might not be worth the hassle. Here are some of the main benefits.
One of the greatest perks of forming a limited liability company is in the name—the limited liability. Each LLC is a separate entity with its own assets, members, and liability. This means that if an LLC is sued, its members (the owners) aren’t personally responsible for paying any debts owed by the LLC. Only the assets held within the LLC are fair game for creditors.
If you separate out your assets into different LLCs (all owned by your holding company LLC), you can shield each from each other. Here’s an example. Say you have four food trucks, all owned and operated under the same LLC. One of your food trucks makes someone sick, and you face a lawsuit. While your personal assets would typically be considered off limits, you could lose all four food trucks. But if each food truck has its own LLC (owned by your holding company), your other food trucks would be shielded from liability.
Another reason business owners sometimes choose to operate one LLC under another is for privacy protection.
There are a few states (Wyoming, Delaware, and New Mexico) where you don’t need to disclose to the public who owns your LLC. Of course, if you don’t live in one of these states, this is of little help to you—unless you start two LLCs and list one as the owner of the other.
Here’s how it works. Say you live in a state where you’re required to list your LLC owners’ names and addresses on your Articles of Organization (a public document). You can first start an LLC in a more privacy-friendly state (like Wyoming), where you only need to provide the public with the name and address of your registered agent. Then, you can list your Wyoming LLC as an owner of your other LLC. If someone out there is trying to track down your home address, they’ll be unable to find it on the public record.
Learn how to Live Privately with an LLC.
Disadvantages of an LLC Owning Another LLC
Increased privacy protection and liability protection rules. But there’s a reason every business doesn’t operate under fifteen different LLCs. Namely, it’s expensive and bureaucratically burdensome. See what we mean.
Whenever you form an LLC, you have to pay the Secretary of State to file Articles of Organization. Depending on where you’re forming your LLC, this can add up pretty fast (we’re looking at you, Massachusetts!). Plus, most states require an annual or biennial report, which usually also carries a fee. In California, LLCs have to pay an annual $800 Franchise Tax. In New York, LLCs have to pay to publish a legal notice in two local newspapers, and publishing fees can easily creep into the thousands, especially if you’re in NYC. So between the cost to set them up and keep them going, owning several LLCs can get pretty expensive.
If you already have an LLC, you know that starting an LLC and taking care of all the subsequent requirements is a lot of work.
Each LLC you form will need its own LLC operating agreement, bank account, and EIN. When something changes with your LLC, you’ll likely need to file an amendment. You’ll also have to file annual or biennial reports. And if your state has additional requirements—like getting a state-wide business license or publishing a legal notice in a newspaper—you’ll need to do that for each LLC you own as well.
In other words, opening separate LLCs means paperwork, paperwork, and more paperwork.
How to Set Up a New LLC Under Your LLC
The process for setting up a subsidiary LLC is the same as starting any LLC, with one difference. If your state requires you to list ownership information on your Articles of Organization (as most states do), you’ll list your parent or holding company LLC as a member. And regardless of whether or not your state requires ownership information on your Articles of Organization, you’ll need to list your parent or holding company LLC as a member in your operating agreement.
Can I run two businesses under one LLC?
Sure. In fact, you can run three or four or seventeen LLCs under one LLC. The only limit to how many LLCs you can own under one LLC is how many you can afford to form and maintain.
How do I put a new business under my LLC?
All you need to do is start an LLC in your state and list your current LLC as a member on your Articles of Organization and/or operating agreement. Your LLC can be the only member or you can split ownership with another business or individual. That’s up to you.
Can one LLC fund another LLC?
Yes. Membership interest is usually directly correlated with how much money a member initially contributes to the LLC. So if your holding company pays for 75% of your LLC’s initial contributions, the holding company will own 75% of the LLC. Of course, this arrangement can be altered in your operating agreement.
But while your holding company can fund your LLC, it’s also important to keep your LLC’s finances separate and organized. This means that you shouldn’t, say, pay your subsidiary LLC’s bills from your holding company LLC’s bank account. This erodes the legal separation between the two and makes it more likely that a court could find that your two LLCs aren’t actually legally distinct entities. So yes, your holding company can fund your LLC, but make sure contributions are properly documented.