Q: Can a business entity be a member of my LLC, and does it matter if the entity is from another state?
Thank you to a customer for that great question! Yes, LLC members can be either individuals or business entities—such as LLCs or corporations. The business entity does not have to be formed in the same state or jurisdiction as your LLC in order to be a member.
What is an LLC member?
An LLC member is an owner of an LLC (similar to a shareholder of a corporation). Members contribute money, property, or services to an LLC to pay for their membership interest. Typically, the amount you contribute to the LLC correlates to the percentage of membership interest you own. For example, if one member contributed $6,000, and a second member contributed $4,000, the first member would have a 60% membership interest, and the second member would have a 40% interest. However, you can divide membership interest differently in your LLC operating agreement, if you choose.
Why would I want an LLC or corporation to be a member of my LLC?
The most common reason why business owners create an LLC owned by another LLC or a corporation is to create a holding company. A holding company is a business entity that doesn’t sell any products or services but exists simply to control another company and hold assets. The benefit of a holding company is additional liability protection—if the subsidiary (the business the holding company controls) goes bankrupt, creditors can’t go after the holding company’s assets.
Who can’t be a member of an LLC?
There are some cases in which a business entity usually can’t be a member of an LLC—including PLLCs and S-corps. In the case of PLLCs (professional limited liability companies), members are typically required to be licensed professionals. So for example, if your PLLC was a dentistry practice, all members would most likely be required to be licensed dentists. However, the rules for PLLCs vary by state.
If your LLC is taxed as an S-corp, one of the requirements for S-corp status is that all members must be individuals (with a few exceptions). So you would most likely not be able to have a business entity as a member of your LLC if you plan to apply for S-corp tax status.
Learn more about who can be an S-corp shareholder/member.
Do I need to disclose who my LLC members are?
It depends on where you form your LLC. Some states require you to include your members’ names and addresses on the LLC Articles of Organization, whereas others do not. Even if the state where you are forming your LLC does require you to list member information, you can help protect your privacy by hiring a registered agent service that agrees to put their business address on public business filings instead of your members’ wherever possible.