Can an LLC Own Another LLC? A Guide to Holding Companies and Privacy

Disclaimer: This article provides general information for educational purposes only. It is not legal advice, does not create an attorney-client relationship, and should not be relied upon as a substitute for consultation with a qualified attorney. Laws vary by state, and individualized guidance is recommended.

Going from one business to two should not mean doubling your legal stress. As entrepreneurs grow their ventures, whether that means adding a real estate investment to a consulting business or launching a second e-commerce brand, the question of how to structure everything becomes a real priority. One of the most practical ways to manage that growth is by having one LLC own another.

Can an LLC Own Another LLC? (The Legal Reality)

Yes, an LLC can own anywhere from 1% to 100% of another LLC. Under the law, an LLC is treated as a "legal person," which gives it the same rights as an individual to enter into contracts, open bank accounts, and hold membership interests in other business entities.

When you set up this structure, you create a hierarchy:

The Parent Company (Holding Company): This is the LLC that owns the interest in the other company. It typically does not sell products or services itself. Its main purpose is to hold assets or ownership stakes.

The Subsidiary LLC: This is the company owned by the Parent LLC. It handles the day-to-day operations, signs leases, and works with customers.

This setup is common among founders who run multiple businesses and want to keep things organized under one umbrella while maintaining clear legal boundaries between each venture.

Why Use a Parent-Subsidiary Structure?

Having an LLC own another LLC is not just about staying organized. It is a deliberate move designed to protect your money and your identity.

Risk Isolation and Liability Protection

The main reason people use this structure is to prevent what you might call "liability crossover." Say you own a construction company and a separate landscaping business as two independent LLCs. A lawsuit against one generally will not touch the other. By placing them both under a Parent LLC, you add another layer of separation. If the subsidiary landscaping company gets hit with a major judgment, the assets held by the Parent LLC (or your other subsidiaries) are typically protected from that debt.

Anonymity and Privacy

For a lot of business owners, privacy is a form of security. In many states, the names of the members (owners) of an LLC are part of the public record. When a Parent LLC owns a subsidiary, the public filing for the subsidiary lists the Parent LLC as the owner rather than your personal name. If the Parent LLC is registered in a state with stronger privacy protections, you can keep your name out of the picture entirely.

Simplified Exit Strategy

If you decide to sell one of your business lines down the road, a subsidiary structure makes the process much cleaner. You can sell the membership interests of the subsidiary to a buyer without needing to dissolve your entire operation or transfer individual assets one by one.

How to Move Money: The "Money Flow" Roadmap

One of the biggest mistakes entrepreneurs make with this structure is treating the Parent and Subsidiary bank accounts like they are the same pot of money. To keep the "corporate veil" intact and protect yourself from personal liability, you need to follow strict rules around how money moves between entities.

The "Arms-Length" Rule

To keep your asset protection intact, every transaction between the Parent and the Subsidiary needs to look like something two unrelated companies would agree to. If the Parent LLC provides marketing services to the Subsidiary, the Parent should bill the Subsidiary at a fair market rate and back it up with a Service Agreement. Informal cash transfers with no documentation are exactly the kind of thing that can get your corporate veil pierced in court.

The Banking and Setup Checklist

Getting the legal structure in place is only part of the job. You also need to satisfy the requirements of the IRS and your bank.

Obtain Separate EINs: Even though the Parent owns the Subsidiary, the Subsidiary is its own legal entity. You need a separate Employer Identification Number (EIN) from the IRS for each LLC.

Update Operating Agreements: The Subsidiary's Operating Agreement must list the Parent LLC as the "Sole Member" or "Managing Member."

Open Dedicated Bank Accounts: Never mix funds between entities. The Subsidiary needs its own business checking account. When you go to the bank, bring the Articles of Organization for both the Parent and the Subsidiary, since the banker will need to verify the chain of ownership.

Appoint a Registered Agent: Each entity must have a registered agent in the state where it does business to handle legal correspondence.

The "Warning Zone": Costs and State-Specific Considerations

The Parent-Subsidiary model is effective, but it is not free. Before you start stacking LLCs, think through the administrative and tax costs.

State Franchise Taxes and Annual Fees

Some states charge an annual franchise tax or fee for every LLC registered there, including holding companies that do not conduct business in the traditional sense. If you have a Parent and three Subsidiaries all registered in one of these states, those annual fees add up fast. Check your state's current requirements before committing to this structure.

Series LLC Limitations

Some states offer a "Series LLC," which lets you create separate "cells" under one umbrella for a single filing fee. While that sounds convenient, it comes with risk. Not all states recognize the liability protections of a Series LLC formed in another state. If you do business across state lines, a traditional Parent-Subsidiary structure is generally the safer route.

Foreign Qualification

If your Parent LLC is registered in one state but your Subsidiary operates a physical location in another, the Parent may need to "Foreign Qualify" in that second state. This means additional filing fees and annual report requirements, which can add up quickly.

Conclusion

Using an LLC to own another LLC is a smart way to scale your business while keeping your assets protected. It gives you a clean framework for growth, adds a layer of privacy, and makes it easier to sell or transition individual business lines down the road.

That said, this structure is only as strong as your record-keeping. If you skip documenting intercompany transfers or fall behind on state filing fees, a court could pierce the corporate veil and put your personal assets at risk.

Next Steps:

• Evaluate your revenue: If your new venture is still in the idea phase, a separate LLC might be more than you need right now.
• Check the costs: Look into your state's annual fees to see if this structure makes financial sense for your situation.
• Get the paperwork right: Use attorney-reviewed Operating Agreement templates to make sure your Parent-Subsidiary relationship is set up properly from the start.

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