Can an LLC Really Own Another LLC? – Yes, But Avoid This Mistake + FAQs

Confused about whether an LLC can own another LLC? You’re not alone. According to the U.S. Small Business Administration, around 15% of LLCs are structured as subsidiaries of another company, highlighting how common this approach is. Yet many owners get the details wrong—risking tax complications or even jeopardizing their liability protection.

Yes, an LLC Can Own Another LLC – Here’s the Straight Answer

Yes, one LLC can legally own another LLC in the U.S., and it happens more often than you might think. In this structure, the owner LLC becomes a parent (holding) company, and the LLC it owns is called a subsidiary. All 50 states allow an LLC’s member (owner) to be another business entity, including another LLC or a corporation. You can even set up a new LLC where the sole member listed on its formation documents is an existing LLC.

This parent-subsidiary LLC setup is perfectly legal and even common for businesses wanting multiple entities under one umbrella. For example, you might form ABC Holding LLC to own 123 Operations LLC. The holding company (ABC Holding LLC) doesn’t run day-to-day business; it simply owns 100% of the operations LLC as its subsidiary. The two LLCs remain separate legal entities, each with its own assets and liabilities, but ownership and control are connected through the parent LLC.

Why would you do this? There are several strategic benefits. Liability protection is a big one: if the subsidiary LLC gets sued or incurs debt, the parent LLC’s assets (and the parent’s owners’ personal assets) are shielded. By placing different business ventures or assets into separate LLCs, a problem in one won’t automatically affect the others. This structure also provides clarity and organization—each LLC can focus on a specific line of business or asset, while the holding LLC oversees the whole group. In short, one LLC owning another can help compartmentalize risk and simplify management of multiple ventures under one ownership framework.

That said, forming multiple LLCs isn’t something to do on a whim. While it’s legal and often advantageous, it comes with added complexity and cost. Each LLC must be formed and maintained separately, with its own records, fees, and compliance requirements. To make this strategy work for you, it’s crucial to structure it properly and avoid common pitfalls—let’s explore those next.

LLC Ownership Structure Mistakes to Avoid

Even though LLC-on-LLC ownership is allowed, there are pitfalls that can trip up business owners. Avoid these common mistakes when structuring one LLC to own another:

1. Mixing Finances or Identities: Never commingle funds or treat the parent and subsidiary as one big slush fund. Each LLC needs its own bank account, books, and records. Failing to keep them separate could lead to piercing the corporate veil, meaning a court might hold one LLC (or its owners) liable for the other’s debts.

2. Ignoring Tax Classification Rules: Don’t assume you automatically get a tax break just by adding an LLC. If a single-member LLC owns another single-member LLC, the IRS will treat the subsidiary as a disregarded entity (its income merges into the parent’s tax return). If there are multiple owners involved, the subsidiary might be taxed as a partnership with its own return. Misclassifying these or forgetting to file necessary forms can cause IRS headaches. (For example, if you want your LLC to elect S-corp status, remember that an S-corp can’t have another LLC as an owner—more on this in the FAQ.)

3. Violating S-Corp Ownership Restrictions: This is a specific but important pitfall. An LLC can choose to be taxed as an S-corporation for potential tax savings, but S-corp rules require that all owners are individuals (or certain trusts/estates). If you set up an LLC owned by another LLC and try to elect S-corp status, you’ll run afoul of IRS rules and could lose the election. In short, an LLC that’s owned by another company cannot be an S-corp. Plan your tax status accordingly.

4. Overcomplicating Your Structure: More entities mean more paperwork. Each LLC you create comes with formation fees, annual report filings, registered agent costs, and possibly state franchise taxes or publication fees. Setting up five LLCs when two would do wastes money and time. Only create as many LLCs as truly necessary for liability segregation or business purposes. Too many cooks (LLCs) can spoil the broth—or at least drown you in compliance duties!

5. Confusing DBAs with LLCs: A DBA (Doing Business As) is just a nickname for a business, not a separate legal entity. Some owners try to use one LLC with multiple DBAs for different ventures to avoid forming separate LLCs. Be careful here: if all your businesses are under one LLC (just using different names), they share the same liability pool. A lawsuit against one DBA is a lawsuit against the one LLC (and thus affects all the business activities in that LLC). If your goal is to isolate risk, a subsidiary LLC is far more effective than a DBA. Conversely, if liability isn’t a big concern and you just want brand separation, a DBA might suffice without the cost of a new LLC. The key is not to mistake a DBA for the protection that a true subsidiary LLC provides.

By steering clear of these mistakes, you set a solid foundation for a successful multi-LLC structure. Next, we’ll break down some key terminology so you can navigate the details like an expert.

Key Terms You Need to Know

Understanding the lingo is half the battle when dealing with LLC ownership structures. Here are essential terms (and concepts) to know before one LLC owns another:

• Parent LLC (Holding Company): An LLC that owns one or more other companies. The holding company usually doesn’t operate a business itself; its primary role is to hold ownership in subsidiary entities. (E.g. Alpha Holdings LLC owns 100% of Beta Enterprises LLC – making Alpha the parent.)

• Subsidiary LLC: An LLC that is owned (wholly or partially) by another company. The parent typically has controlling interest (>50% ownership) in a true subsidiary. A wholly-owned subsidiary means the parent LLC owns 100% of the membership interest of that LLC.

• Member: The legal term for an owner of an LLC. Members can be individuals or business entities. If an LLC is the member of another LLC, the LLC is effectively an owner of the second LLC.

• Single-Member LLC (SMLLC): An LLC with only one member. If that sole member is another LLC, the entire subsidiary is owned by one parent LLC. The IRS disregards single-member LLCs for federal tax by default (meaning they don’t file a separate return).

• Multi-Member LLC: An LLC with two or more members. If an LLC is one of those members (alongside other individuals or entities), the LLC-owned business will be treated as a partnership for tax purposes (unless it elects corporate taxation). A multi-member structure usually requires a separate tax return (Form 1065 for partnerships).

• Disregarded Entity: A business entity that the IRS ignores as separate from its owner for tax purposes. A single-member LLC is a disregarded entity by default. So, if Parent LLC is the sole owner of Subsidiary LLC, the IRS may treat the subsidiary’s income as if it belongs directly to the parent (unless a different tax classification is chosen).

• Pass-Through Taxation: The tax treatment most LLCs enjoy, where the business itself isn’t taxed on profits. Instead, profits “pass through” to the owners’ tax returns. In an LLC-within-LLC scenario, income can pass through multiple layers: from the subsidiary to the parent, and then from the parent to the ultimate owners. No double taxation occurs as long as you haven’t elected to have either LLC taxed as a C-corporation.

• Operating Agreement: The internal document governing an LLC’s rules and operations. When one LLC owns another, it’s wise for each entity to have an operating agreement. For the subsidiary, the operating agreement should acknowledge the parent LLC as a member and outline any special arrangements (like how the parent will exercise its control). The parent LLC’s operating agreement might also include provisions about owning subsidiaries (for instance, requiring approval of parent members before forming or investing in a new LLC).

• Series LLC: A special type of LLC available in certain states (like Delaware, Texas, Nevada, and others) that allows multiple “series” or cells under one LLC umbrella. Each series can have separate assets and liabilities, almost like a subsidiary, but legally tied to one master LLC. A series LLC can be an alternative to creating multiple traditional LLCs. However, since not all states recognize series LLCs and the laws are evolving, many businesses still prefer using a holding company with separate LLCs for each venture.

• Joint Venture LLC: A scenario where two or more independent parties (which could be individuals or other companies) form a new LLC together, sharing ownership. If an LLC is part of a joint venture LLC with, say, another company, that joint venture LLC is a multi-member subsidiary from the perspective of each owner. Joint venture LLCs are common when two businesses want to collaborate on a project while each limiting its liability.

Keep these terms in mind as we delve deeper. Next up, let’s look at concrete examples of how LLC ownership structures play out in real life.

LLCs Owning LLCs in Practice: 3 Common Scenarios

To make the concept crystal clear, here are three common scenarios showing how one LLC can own another. We’ll illustrate each structure and its key implications:

As you can see, LLC-to-LLC ownership can range from a simple one-to-one parent/subsidiary relationship to a more complex network of entities. A real-world example: Alphabet Inc. (Google’s parent company) is essentially a holding entity that owns many subsidiary companies—while Alphabet is a corporation, small businesses mimic this approach with LLCs. On a smaller scale, imagine a serial entrepreneur: she has one holding LLC that owns a restaurant LLC, a web design LLC, and a rental property LLC. Each business is separate, but ultimately controlled by the one parent entity.

The structure you choose depends on your goals. If you only need one subsidiary, a single holding LLC and one operating LLC might suffice. If you have multiple ventures, a holding company with a fleet of LLCs could provide organization and protection. And if you’re collaborating with partners, expect a multi-member subsidiary with shared ownership. Next, we’ll dive into the legal framework that makes all this possible.

The Legal Framework: How U.S. Law Handles LLC-on-LLC Ownership

It’s important to understand why and how this structure is permissible. Here’s an overview of the laws and rules that govern one LLC owning another:

State Laws: LLCs are creatures of state law. Every U.S. state (and D.C.) has its own LLC statutes, but they share similar principles. Crucially, state laws do not restrict who can be an LLC member — the member can be a human, another LLC, a corporation, a partnership, or even a foreign entity. For example, Delaware’s LLC Act defines “person” (who can be a member) to include companies and legal entities, not just individuals. That means under Delaware law (and similarly in other states), an LLC may be owned by another LLC with no special permission needed. There’s also typically no limit on the number of LLCs one entity can own. As long as you properly form each LLC with the state and list the owning LLC as a member, you’re abiding by state requirements.

Formation and Documentation: To set up an LLC owned by another LLC, you follow the usual formation steps. You’ll file Articles of Organization (or a Certificate of Organization) with the state for the new LLC, and where it asks for the member/owner’s name, you’ll list the parent LLC instead of an individual. It’s wise to have the parent LLC officially authorize the creation of the subsidiary (often via a resolution or consent) to ensure everyone’s on board, especially if the parent LLC has multiple members. Legally, that’s an internal formality, but it strengthens the separation between entities. Each LLC should then have its own operating agreement. The subsidiary’s operating agreement will list the parent LLC as the owner/member. The parent’s operating agreement can be updated (if needed) to note it owns the subsidiary. These documents form the legal backbone of your structure and provide evidence that each company is distinct and properly managed.

Liability Separation: One reason LLCs are popular is their limited liability shield. This protection generally holds up even with parent and subsidiary LLCs. The parent LLC is not automatically on the hook for the subsidiary’s obligations just by virtue of ownership. Likewise, the subsidiary isn’t liable for the parent’s debts. The law treats them as separate “persons.” However, the exception to this (in any LLC context) is if a court decides to pierce the LLC veil due to abuse of the LLC form—say, if the companies were not actually kept separate in practice, or one was just a sham to defraud creditors. To maintain the liability shield, respect corporate formalities and keep finances separate (as mentioned in Mistake #1 earlier).

Tax Laws (IRS Framework): The Internal Revenue Service has clear rules acknowledging LLCs with layered ownership. By default, a single-member LLC is disregarded for federal income tax. So if Parent LLC owns Subsidiary LLC 100%, the IRS treats the subsidiary as part of the parent. No separate federal tax return is filed for the sub; its income and expenses can be reported on the parent’s return (for instance, if the parent is a partnership LLC, the sub’s activity gets included in the partnership return; if the parent is single-owner, the sub’s activity goes on the owner’s Schedule C or other appropriate form). If the subsidiary LLC has multiple owners (e.g., Parent LLC owns 60%, and another person owns 40%), then the subsidiary is a partnership for tax purposes and must file its own Form 1065, issuing K-1s to the parent LLC and the other owners. The parent LLC, in turn, includes the K-1 income on its return.

It’s worth noting that both parent and subsidiary LLCs have the freedom to elect a different tax status if desired (by filing IRS Form 8832 or Form 2553 for S-corp election). For instance, a subsidiary LLC could elect to be taxed as a C-corporation, which would mean it files its own corporate tax return regardless of being owned by an LLC. But in most small business scenarios, people keep the default pass-through taxation to avoid double-taxation and simplify things.

Evidence in Practice: Thousands of businesses across the U.S. utilize parent-subsidiary LLC structures. The legal framework for it has been around for decades. In fact, the IRS collects data on “disregarded entities” — a huge number of which are small LLCs owned by other LLCs or corporations. Regulatory agencies like the IRS or state tax boards often provide guidance for such setups (for example, how to handle employment taxes or 1099 forms for a disregarded LLC). (If you’re curious about handling 1099s for single-member LLCs, including those owned by other entities, check out our guide on LLC 1099 requirements for detailed pointers.) The bottom line is that the law fully supports multi-LLC arrangements, as long as you play by the rules.

Now that we’ve covered the laws and tax rules, let’s compare how different ownership configurations (single-member vs. multi-member) can affect your LLC structure.

Single-Member vs. Multi-Member LLC Ownership: Key Differences

When one LLC owns another, the scenario can involve single-member LLCs or multi-member LLCs (or a mix of both). Here’s how these variations stack up and why they matter:

Tax Treatment: If LLC A (the parent) is the sole owner of LLC B (the subsidiary), LLC B is a single-member LLC. As a result, the IRS ignores LLC B as separate from LLC A (unless you elect corporate taxation for B). All of B’s income and expenses flow up to A. Practically, this means no separate federal income tax return for B. LLC A will report B’s activity on its own tax filings (which could be on Schedule C, a partnership return, or even an S-corp return depending on A’s status).

By contrast, if LLC A owns only a portion of LLC B (or LLC B has multiple owners), then LLC B is a multi-member LLC. Multi-member LLCs are treated as partnerships by default. So LLC B would file a partnership tax return and send a K-1 to each owner (one K-1 would go to LLC A for its share). LLC A would then include that K-1 income on its own return. In short, single-owner structures can simplify your taxes (one combined filing), while multi-member setups mean each entity might file separately and pass income through multiple layers.

Administrative Complexity: A single-member parent-subsidiary chain tends to be simpler to administer. With one parent and one wholly-owned sub, you might only have one combined set of books for tax purposes (though you should still do bookkeeping for each company separately for clarity). There are fewer stakeholders to consult for decisions, making governance straightforward. On the other hand, a multi-member structure (where either the parent LLC has multiple owners, the subsidiary has multiple owners, or both) introduces more complexity. You’ll be dealing with more complicated operating agreements, separate financial statements, and coordination of tax filings (the subsidiary’s return feeding into the parent’s finances, etc.). Neither is “better” universally; it depends on your needs. Just be prepared: multi-member structures require a bit more work in coordination.

Control and Decision-Making: In a single-member scenario, one ultimate owner (person or entity) is calling the shots. For example, if Jane Doe is the sole owner of Parent LLC, and Parent LLC wholly owns Sub LLC, then Jane ultimately has 100% say in what both LLCs do. She might appoint managers, but fundamentally she’s in control, making unified strategy easier. In a multi-member scenario, control is shared or distributed. If Parent LLC itself has three co-owners, decisions about what Sub LLC does may need a vote or consensus among those three owners at the parent level. Similarly, if Sub LLC has multiple owners (one of which is the parent LLC), decisions within Sub LLC will involve all its owners per the Sub’s operating agreement. Translation: single-member structures concentrate authority (efficient but rests all decisions on one party), while multi-member structures require clear agreements to manage potentially differing interests.

Liability and Asset Protection: Both single-member and multi-member LLCs provide limited liability protection to their owners. In terms of legal protection, one isn’t inherently stronger than the other when it comes to parent vs. subsidiary relationships. A parent LLC—whether it has one owner or many—won’t be liable for the subsidiary’s obligations just by ownership alone. What can make a difference is how you operate them: multi-member entities often adhere strictly to formalities (because multiple people are involved), whereas single-member entities run the risk of being lax (since one person controls everything). Courts have, at times, been slightly more skeptical of single-member LLCs in veil-piercing cases if the owner doesn’t keep business and personal matters separate. The remedy is simple: treat every LLC as a real company, maintain separation, and you’ll generally be fine whether you have one member or ten.

Example: Suppose Alice is the sole owner of Main LLC, and Main LLC owns 100% of SubOne LLC. This is single-member all through (Alice ultimately owns and controls both). Tax time is relatively simple: SubOne’s profits go right onto Main LLC’s books, and since Alice is the only person behind Main LLC, she reports everything on her personal return (likely via a Schedule C or K-1 if Main is taxed as a partnership with her as sole partner). Now, suppose instead that Alice and Bob together own Main LLC (making Main a multi-member partnership). Main LLC owns 100% of SubOne LLC. SubOne is still single-member (with Main as that one member), so SubOne’s income goes onto Main’s return. But now Main LLC files a partnership return for Alice and Bob, and each gets a K-1 for their share. It’s an extra layer, but the flow-through still ensures income is only taxed once, just divided. If SubOne had a third-party co-owner, then SubOne itself would file a return too. As you add layers or members, complexity grows, but the principles remain consistent.

In summary, single-member structures are simpler and consolidate control, whereas multi-member structures distribute ownership and require more coordination. Both can be effective—just choose based on your ownership situation and how you want to manage your businesses.

IRS, SEC, and State Regulations: Who Cares About Your LLC Structure?

When structuring LLC ownership, it’s not just about you and your companies—regulators and authorities will have a say too. Different legal entities and agencies may take interest in your parent-subsidiary setup. Here’s how key players view and regulate LLCs owning LLCs:

IRS and Tax Authorities

The IRS is primarily concerned with how your entities are classified for tax and that the proper returns are filed. Fortunately, the IRS rules are quite accommodating of LLC-on-LLC structures:

• Tax Identification: Each LLC (even a disregarded single-member one) should have its own Employer Identification Number (EIN) if it has employees or distinct banking needs. The IRS issues EINs per entity. A wholly-owned subsidiary can use the parent’s EIN for certain filings if it’s disregarded, but in practice it’s cleaner for each to have its own EIN. This helps keep payroll and tax deposits separate and avoids confusion.

• Tax Classification: By default, as noted, a single-member LLC is disregarded and a multi-member LLC is a partnership. When one LLC owns another, these defaults still apply. You don’t have to notify the IRS that “X LLC owns Y LLC” explicitly—there’s no special form for that relationship alone. You just handle each entity’s taxes according to its classification. If the subsidiary is disregarded, its activity is reported under the parent’s identification. If not, it files its own return and the parent reports any income from it.

• Transactions Between Parent and Sub: If the subsidiary is disregarded, transactions between parent and sub are generally ignored for tax purposes. For instance, the parent injecting money into the sub isn’t seen as income; it’s just moving money within the same tax owner. If the sub is a separate tax entity (like a partnership or corp), then payments or transfers may have tax implications (loans, dividends, etc., should be at fair value). This typically matters more in bigger corporate contexts than small businesses, but keep it in mind—talk to a tax advisor if your parent-sub transfers get complex.

• 1099 Forms: A quick note on 1099s (those forms businesses issue to independent contractors or vendors). If your parent LLC pays your subsidiary LLC for services (not a common scenario, but say the sub charges rent to the parent), do you need to issue a 1099? Generally, businesses don’t issue 1099s to corporations, and if your sub is a disregarded LLC under a corporation or under an individual who is treating it as a sole prop, you might in some cases. It can get nuanced. (We answer the specifics in our separate guide on which LLCs receive 1099s, so check that out to avoid filing mistakes.) In most straightforward cases, intra-company payments in a wholly-owned structure aren’t arm’s-length transactions requiring 1099s. But if your LLCs do engage in formal contracts with each other or with outside clients, follow standard IRS guidelines for reporting income and expenses.

Bottom line: The IRS is fine with one LLC owning another. Just ensure you understand the tax classification of each entity, file the right forms (for example, the parent LLC might need to file a partnership return including the sub’s data, or not, depending on the setup), and keep good records. No special federal tax penalties or extra taxes simply because you have a parent-subsidiary LLC relationship.

SEC and Securities Law Considerations

Small businesses might think the Securities and Exchange Commission (SEC) only matters for big corporations or Wall Street, but aspects of securities law can touch LLC arrangements too—especially when raising money or sharing ownership.

• Membership Interests as Securities: If you form a parent LLC and sell membership units in that LLC to investors (or if you bring investors into a subsidiary LLC), those membership interests can be considered securities under federal law. This means you must follow securities regulations, typically by either registering the offering or fitting into a registration exemption (like a private offering under Regulation D). Having an LLC own another LLC doesn’t by itself trigger SEC involvement, but the act of financing either LLC through outside investors does. Always ensure any fundraising—be it for parent or sub—complies with SEC and state “blue sky” laws. Many LLCs do private offerings (exempt from full SEC registration) to raise capital for ventures, which is perfectly legal if done right.

• Investment Company Act: One scenario to watch out for: if your parent LLC’s primary business is just holding investments (like owning subsidiaries or other passive investments) and not actively running businesses, it could inadvertently fall under the definition of an “investment company” (which is essentially a mini mutual fund or holding company that might need to register with the SEC under the Investment Company Act of 1940). Most operating businesses avoid this because they are actually engaged in commerce. But, for example, if your LLC holding company just holds stock in 10 startups (and that’s all it does, no active trade or business), you might want to consult a lawyer to ensure you’re not subject to unforeseen regulation. It’s an edge case for small private LLCs, but worth noting as companies grow.

• Public vs Private: Generally, if your LLCs remain privately held (no public trading of membership interests) and you’re only dealing with a few owners who are actively involved, the SEC’s role is minimal. The main message: LLC ownership structures are not exempt from securities law. Whenever ownership interests are sold or transferred, consider if securities rules apply. If you stick with wholly-owned setups or simple joint ventures without broad investor solicitation, you likely won’t have direct dealings with the SEC.

State Regulations and Compliance

State-level authorities care about how you form and operate your LLCs. Key points on their radar include:

• Formation and Registration: Each LLC must be registered in a state (or multiple states if it does business across state lines). If your parent LLC and subsidiary LLC are formed in different states, be mindful of foreign LLC registration rules. For example, say your parent LLC is a New York LLC and it forms a subsidiary to operate in New Jersey. The New Jersey subsidiary will be a New Jersey LLC doing business there. The New York parent LLC isn’t automatically “doing business” in NJ just by owning the NJ company (ownership alone usually isn’t enough to trigger foreign qualification). However, if the parent starts directly engaging in business activities in the other state (beyond just owning the sub), it might need to register as a foreign LLC in that state. Each state defines doing business differently, so it’s wise to check if you need to register the parent as a foreign entity wherever your subs are operating.

• Annual Reports and Fees: With multiple LLCs, expect multiple annual report filings and state fees. Each state typically requires an annual (or biennial) report for each LLC to keep its information up to date, along with a fee. In some states like California, there’s an annual franchise tax or LLC fee for each entity (California charges $800 per LLC per year, for instance). This means a parent and a sub in CA would cost $1,600 each year just in franchise taxes, regardless of income. Plan for these costs in your budget. The state doesn’t care that one LLC owns the other—they’ll charge fees for both as separate entities.

• Licensing and Permits: States (and cities/counties) might require licenses for certain business activities. If your subsidiary LLC is the one actually running the business (say it’s a restaurant with a health permit and liquor license), that subsidiary must obtain the proper licenses in its own name. The parent LLC, if it’s just a holding company, might not need any operational licenses since it’s not “doing” the regulated activity. But if the parent is involved in a regulated business, it will need licenses too. Some state regulators might also ask for ownership information: for example, if a subsidiary LLC applies for a professional license or a cannabis license (industries with heavy oversight), you often have to disclose parent company owners and maybe even the ultimate individual owners. Be prepared to provide that transparency when required.

• Professional LLC Restrictions: One notable exception in some states—professional LLCs (PLLCs) for licensed professions (like doctors, lawyers, architects) often must be owned by licensed individuals only. That means a regular LLC or another entity cannot own a PLLC if it’s prohibited by the state’s professional practice laws. For instance, a law firm that’s an LLC usually can’t be owned by a non-lawyer LLC. If you’re in a field like this, check your state’s rules; you might not be allowed to have an LLC holding company over a PLLC. For most typical businesses, this isn’t an issue.

• Series LLC Recognition: If you opt for a series LLC instead of separate LLCs, know that not all states recognize series as separate for things like litigation or even registration. A series LLC might need to pay for each series in some states or might face uncertainty when doing business in states that lack series laws. If your strategy was to use series LLCs as an alternative to multiple LLCs, keep this in mind (and perhaps see our guide on Series LLC vs Multiple LLCs for more insight). Traditional parent-subsidiary LLCs are universally recognized structure-wise.

In essence, state authorities want you to properly form each LLC, pay the required fees, and follow any industry-specific regulations. Having one LLC own another doesn’t exempt you from any standard requirement that each business entity must fulfill.

Business Licensing and Other Authorities

Beyond the IRS, SEC, and state formation regulators, consider other authorities like local licensing boards, banking institutions, or contracting authorities:

• Local Business Licenses: Many cities or counties require a basic business license to operate within their jurisdiction. If you have multiple LLCs, each one might need its own local license if it’s actively doing business there. For example, if your parent LLC is purely a holding entity (no operations), it might not need a city business license. But if your subsidiary runs a storefront or provides services in town, that subsidiary likely needs to register and get a license from the city. Be sure to check local requirements for each entity.

• Banking and Finance: Banks will treat each LLC as a separate customer. Each LLC should have its own bank account. When opening an account, the bank may ask for ownership info. If an LLC is owned by another LLC, they might want to see the parent’s formation documents and possibly information on the ultimate human owners for anti-money-laundering compliance. This is normal—just be ready to provide an “organizational chart” and relevant documents to show who is behind each company.

• Contracts and Legal Documents: Whenever your subsidiary LLC enters into a contract (with vendors, customers, leases, etc.), make sure the correct entity’s name is on the contract. A common mistake is accidentally signing in the parent’s name when the subsidiary is the one actually doing the business, or vice versa. Always use the precise legal name of the LLC that’s party to the deal. If the parent is just an owner and not intended to be liable on the contract, the parent’s name should not appear except maybe as a disclosure of ownership. This isn’t an authority or regulator issue per se, but it’s a legal practicality that will keep liabilities allocated where they belong (and prevent arguments about who’s responsible for what).

• Business Credit and SEC (State Employment Commission) Accounts: If your companies have employees, each LLC employer may need to set up accounts with the state labor or unemployment insurance department, and withhold payroll taxes under its own EIN. A parent LLC and a subsidiary LLC can’t share those accounts since they’re separate employers. Also, when building credit, each LLC will have its own credit profile. Vendors and credit bureaus won’t usually merge them just because of ownership. Be prepared to manage these separately or consider whether personal guarantees are needed for each entity when they’re new.

• Licensing Boards: In certain industries, if an LLC holds a specific license (like a contractor’s license, real estate brokerage license, etc.), the licensing board might require notification if the LLC’s ownership changes or if it’s owned by another company. They might even need to approve the ownership structure. Always inform relevant licensing boards of your structure if required. For example, a daycare license might need to list the LLC owners, and if one owner is another LLC, they may ask for the individuals behind that LLC too. Transparency with regulators avoids any suspicion that you’re trying to hide who’s running the show.

In summary, multiple layers of LLCs are entirely workable within U.S. law, but each layer must independently satisfy the rules that apply to it. Think of your parent and subs as separate siblings – each has to mind their manners with the authorities, even if one “reports” to the other in business terms. Now that we’ve covered all the bases, let’s address some frequently asked questions to wrap up any remaining nuances.

FAQ: LLC Owning Another LLC

Can a single-member LLC own another LLC? Yes. A single-member LLC can absolutely be the sole owner of another LLC. The owned LLC simply becomes a wholly-owned subsidiary, and this arrangement is legal in all states.

Can an LLC own multiple LLCs at the same time? Yes. An LLC can simultaneously own any number of other LLCs. Many holding companies have several subsidiary LLCs at once—there’s no legal limit, though each additional LLC means extra costs and paperwork.

Is it legal in every state for an LLC to own another LLC? Yes. All U.S. states permit business entities (including LLCs) to be members of an LLC. There are no state laws prohibiting one LLC from owning another, as long as each LLC is properly formed and maintained.

Does each LLC in a parent-subsidiary structure need its own EIN and bank account? Yes. It’s recommended that each LLC, even a subsidiary, obtain its own EIN and maintain its own bank account. This keeps finances separate and clear, which is vital for legal protection and accounting (even if the IRS treats a single-member subsidiary’s finances as part of the parent’s, separate accounts reinforce the liability shield).

Do wholly-owned LLC subsidiaries file separate tax returns? No. If one LLC wholly owns another and no special tax election is made, the subsidiary doesn’t file a separate federal income tax return. The IRS views a single-member subsidiary as part of its parent LLC for tax purposes, so the parent reports the subsidiary’s income on the parent’s return. (Multi-member LLC subsidiaries, however, do file their own partnership returns.)

Is a parent LLC liable for a subsidiary’s debts or lawsuits? No. Generally, a parent LLC is not responsible for the liabilities of its subsidiary. Each LLC is a distinct legal entity, so creditors of the subsidiary usually cannot go after the parent’s assets. The exception would be if legal formalities aren’t followed (leading to veil piercing) or if the parent explicitly guaranteed the subsidiary’s debt.

Can an LLC owned by another LLC elect S-corp status? No. Under IRS rules for S corporations, all shareholders must be individuals or certain trusts/estates – not business entities. This means if an LLC is owned by another LLC, it cannot qualify for S-corp taxation. (If you need S-corp benefits, the owners generally must be people, not companies.)

Does having a parent LLC and subsidiary LLC provide any tax advantage? Not usually. There’s typically no inherent federal tax advantage just from the structure alone. Both parent and sub LLCs are pass-through entities by default, so income is only taxed once at the owner level. The structure is used more for liability isolation and organizational purposes than for tax reduction.