Can an LLC Own Another LLC?Everything You Need to Know

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The main reason many businesses set up a Limited Liability Company (LLC) between parent and subsidiary companies is to increase their liability protection.

But as with all business structures, there are pros and cons to this business model.

Companies can create LLCs and subsidiary LLCs for their other business activities.

The question of whether or not it is a good idea to do so will depend on the risk appetite of the business owner and their willingness to take on additional administrative work.

The Legality of Parent LLCs

Can an LLC Own Another LLC

It is completely legal for LLCs to own another LLC.

The subsidiary LLC is known as a “member” in this situation.

There are also not many restrictions when it comes to another LLC becoming a member of a parent LLC.

Another LLC, a corporation, or an individual can be an LLC member.

It can also be possible for a parent LLC to only have one member.

Reason Why an LLC Wants to Own Another LLC

One of the key reasons LLCs opt to create subsidiary LLCs is to protect the business and increase their liability protection, especially if they have multiple lines of business.

Often, they would prefer to avoid jeopardizing their other businesses by creating member LLCs.

This practice is often seen with high-risk businesses, particularly construction firms.

Usually, a subsidiary holds all the assets and its administrative function, another one takes care of the operations.

As an example, a real estate company owns different rental buildings.

To increase its liability protection, each building is created as an individual LLC.

Suppose one of the buildings got caught up in a lawsuit, the other buildings are protected and are not jeopardized in case the one with the lawsuit loses all of its money and assets.

How this works is that each of the buildings, being member LLCs, manages its own operations while the parent company retains administrative duties over the members.

This is considered a single-member LLC since the parent company is its only owner.

Limitations and Disadvantages of Parent & Subsidiary LLCs

The first disadvantage of having member LLCs is the cost.

Naturally, with multiple LLCs, the fees of setting up the LLC and submitting the LLC forms require a separate filing fee for each one.

It also takes time to file and prepare the Articles of Organization and LLC operating agreement to be submitted when creating LLCs.

The administrative task of maintaining these individual LLCs such as maintaining their own books of account, bank account, and tax documents is additional work.

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  1. UC Hastings Law "Series LLCs: Getting Comfortable with Uncertainty" Page 1 - 21. October 18, 2022

  2. Maryville University "LLC, DBA and corporations: What Do Business Types Mean?" Page 1 . October 18, 2022