Can an LLC Own Another LLC? (All You Need to Know)
There are a lot of questions that business owners have when it comes to forming an LLC. One common question is whether or not an LLC or limited liability company can own one LLC or more.
Parent LLCs and subsidiary LLCs are both valid business entities.
After extensive research and analysis, our team of legal experts and business consultants with over a decade of practice will discuss the benefits of owning a parent LLC and how it can help your business grow.
Quick Summary:
- An LLC can own one LLC or more by forming a parent or master entity and managing subsidiary businesses.
- The main advantages of this structure involve asset protection, corporate income tax efficiency, and business growth.
- Setting up multiple LLCs entails more capital, time, and effort.
Can an LLC Own Another LLC?
An LLC can own another LLC by forming a parent company and managing subsidiary entities.
There are a few different ways that an LLC can own one LLC or more: the parent-subsidiary LLC business structure and the holding company structure.
1. Parent-Subsidiary LLC Structure
The parent entity has the option to manage the subsidiary LLCs by taking part in day-to-day operations.
It also provides asset protection and tax efficiency for the parent entity.
However, it is important to note that the subsidiary company is not a separate legal entity from the parent LLC. This means that the parent entity is responsible for the actions of the subsidiary company.
2. LLC Holding Company
An LLC Holding Company oversees administrative duties without actively participating in the day-to-day operations of its subsidiary LLCs [1].
A holding company is a separate entity that owns all or part of one or more other businesses.
It also requires more paperwork and administrative work. However, it offers more flexibility and can be used in a variety of situations.
These structures are valid ways for an LLC to own another LLC.
Ultimately, the decision about which structure to use depends on the needs of your business. If you're not sure which structure is right for you, consult with an attorney or accountant.
What Types of Business Entities Can an LLC Own?
An LLC can own any business entity, including other LLCs, corporations, and partnerships. This allows business owners to keep their businesses separate and organized.
For example, a business owner could have an LLC that owns a restaurant and another LLC that owns a clothing store. This helps protect the assets of each business in case of bankruptcy or litigation.
Additionally, LLCs can own real estate and other assets. This gives business owners more flexibility when it comes to their business ventures.
Multiple businesses can be run out of a single LLC, which can save on taxes and administrative costs.
How Does a Parent LLC Protect Its Subsidiaries?
The parent LLC protects its subsidiaries by setting up separate bank accounts for them and keeping the finances of each LLC isolated.
The members of the subsidiary LLCs are not liable for the debts or obligations of the parent entity.
This protection is especially important if the subsidiaries are in different states than the parent company. In some cases, a business may be formed as an LLC but will operate as a subsidiary of a larger company.
This can be advantageous for the smaller LLC because it allows them to take advantage of the larger company's name, reputation, and resources.
However, it is important to remember that the subsidiary LLC is still its entity and should maintain separate records and finances.
If you are considering setting up a subsidiary LLC, be sure to consult with an attorney to make sure you are taking all the necessary steps to protect your business.
Benefits of an LLC Owning Another LLC
The benefits of an LLC owning another LLC are asset protection, tax efficiency, and business growth and diversity.
1. Asset Protection
The parent company and its subsidiaries possess unrelated assets in terms of liability.
As we mentioned earlier, if one of the businesses owned by the LLC were to go bankrupt or experience a lawsuit, the other businesses would be protected.
This is because each company is its legal entity and has its assets.
2. Tax Efficiency
When a parent entity owns businesses, they can be taxed as a single entity. This saves on taxes and makes filing taxes simpler.
3. Helps with Business Growth
By having multiple businesses under one umbrella, business owners can more easily expand their operations.
This can be especially helpful if the businesses are in different states or countries.
Are There Any Drawbacks to Owning a Parent LLC?
There are a few drawbacks to owning an LLC parent company. These include the following:
- It can be more costly to set up and maintain than a standalone LLC.
- Parent LLCs have stricter filing requirements than subsidiary LLCs.
- It can be more challenging to raise capital for a business owned by this LLC.
Despite these drawbacks, the benefits of owning a parent LLC typically outweigh the costs. If you are thinking about starting a business, or if your business is expanding, you should consider forming a parent LLC.
This can help protect your business and help it grow.
FAQs
Can You Have Two Businesses Under EIN?
You cannot have two businesses under the same EIN. An EIN is used to identify a business for tax purposes, and each business needs its own EIN. You can obtain an EIN by applying online at the IRS website.
Can Two LLCs Have the Same Dba?
Two LLCs cannot have the same DBA for different businesses. To illustrate, if you own a barbershop and a bakery, you cannot have the same DBA. However, if you own multiple barbershops in one or several states, you can use the same DBA.
Can an LLC Own Multiple LLCs?
An LLC can own multiple LLCs. The company is a separate legal entity from its owners and shareholders, so it can own other companies just like any individual or corporation can.
Can an LLC Own Another LLC?
An LLC can own another company. The process of setting up an LLC is relatively simple if you are using the best-rated online LLC formation service, and it can offer a variety of benefits to businesses.
There are a few drawbacks to owning an LLC parent entity, but these typically outweigh the costs.
If you are thinking about starting or expanding your business, you should consider forming a parent LLC. This can help protect your business and help it grow.
References:
- https://www.wolterskluwer.com/en/expert-insights/using-a-holding-company-operating-company-structure-to-help-mitigate-risk
