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Can a Corporation Be a Member of an LLC? Legal Insights

Max Smith

Reading Time: 6 minutes

Do you want to expand your current corporation? Then, you can try out a different business structure, like an LLC. But a question may arise, “Can a corporation be a member of an LLC?”

The different business structures and ownership will give you more benefits and potential for success. However, some laws and regulations must be adhered to get the rights of both structures.

In this article, I will guide you to explore legitimate ownership between different corporations and LLCs. So let’s go!

The members of an LLC can be anyone or any entity, including a corporation. The U.S. government is flexible in this matter. For instance, any individual, corporation, another LLC, non-profit, and more can become a legal member of an LLC.   

Your corporation can buy a few or a majority of shares in an LLC. If you buy most of the claims, your corporation will become a holding company with a subsidiary LLC.  

But why should you become a member of an LLC when you are running a corporation handsomely? The answer lies in the benefits of having an LLC as a subsidiary company. Check out a few significant benefits below.

  • Pass-through federal tax treatment,
  • Retirement plans,
  • Protecting assets & more.

Moreover, get the rules of your state in detail first. You may need to submit some essential documents. For example, your corporation’s name, physical address, percentage of ownership, and more. 

This information is for general corporations. Yet, there are also other types of corporations. For instance, S Corp and C Corp. Nevertheless, it’s better to get the idea of both S corp or C corp ownership possibilities in an LLC.

Can an S Corporation be a Member of an LLC?

In most cases, yes, an S corporation can become a member of an LLC. It has the right to get shares of a single-member or multi-member LLC.

Although there are not so many restrictions, there are also exceptions! 

You must go through the state laws because they vary from state to state. If the state has no restrictions on your business, you can own an LLC happily

It will bring a major change in the taxation perspective. The IRS sets the governing ownership requirements of an S corp. It is designated for federal taxation.

Suppose your S corporation becomes a member of a single-member LLC. As a result, the LLC will become a disregarded entity. So the S corp will include the LLC income flows for taxation. 

But what if the LLC has multiple members? Then, the income will be taxed as partnership income. 

Furthermore, if the LLC decides to be taxed as a corporation, there will be its own separate tax return. 

However, the taxation method may differ in the case of a C corporation. 

Can a C Corporation be a Member of an LLC?

In the U.S., it’s legal for a C corp to hold shares in an LLC. In fact, it’s a fantastic way to expand your corporation. As a result, your corporation will have joint ventures, subsidiaries, or operational units. 

If your C corporation acquires ownership of an LLC, it will become a division of your corporation. All the revenue and expenses will flow through the corporation for taxation. 

Owning an LLC brings a major benefit to a C corporation. It enhances privacy! 

In some states, you may not be required to disclose LLC member’s names, addresses, and other details. For example, in Ohio, you don’t need to reveal the list of LLC members until the members have equal or less than 5% interest in the company. 

Furthermore, it opens an opportunity to experiment with new business ideas for your C corporation without sharing the details with the public.

Now, I’ll tell you about an exceptional restriction rule!

If your corporation wants to own a PLLC (Professional Limited Liability Company), then it’s not possible. Until your corporation becomes a professional service provider, it cannot own an LLC. For example, doctors, mechanics, teachers, and more services. 

Otherwise, there’s no restriction on owning an LLC as a C corporation.

Can a Corporation Be the Sole Member of an LLC?

Of course! Your corporation can become a solo member of an LLC. In fact, it can create a new LLC.

Nevertheless, your corporation can build a separate business structure to start an additional business. And, it can be an LLC. 

The process for a corporation to create an LLC is the same as an individual’s. You will enjoy the combined benefits of a corporation and an LLC. For example, it will make it easy for profit distribution and protect your assets from liabilities. 

If you think your corporation has financial stability and sole membership will be beneficial, then go for it! Lastly, you can still apply for LLC membership if your corporation is foreign based.

Can a Foreign Corporation Be a Member of an LLC?

The answer is 100% yes! The U.S. government allows foreign corporations to own an LLC in any state. As a result, you may see many foreign corporations running LLCs in the USA.

Your foreign corporation can buy a whole or partial share of an LLC. But what about the procedure? Do you think it’s hard to operate an LLC from outside the U.S.?

Then you are thinking wrong! You can control your subsidiary LLC by following simple tasks. Let’s check out some essential tasks to do.

  • Get an EIN. It’s a federal tax number, which is a must to operate your LLC. 
  • Filling out Form 5472 is essential. It will be a valuable document for the IRS for taxation purposes. 
  • The foreign corporation must have an individual or service provider handle the LLC paperwork and maintenance.
  • Maintain records of your business and obtain the required licenses.
  • Suppose you are not buying but forming an LLC under your corporation’s ownership. In that case, you may need to complete the LLC registration process. It’s the same as starting an LLC. So you can read an article on how to start an LLC.

Lastly, the U.S. government allows many kinds of corporations to enjoy LLC ownership. But do you know about a non-profit corporation owning an LLC? Then read below to find out!

Can a Nonprofit Corporation Be a Member of an LLC?

A non-profit corporation has the explicit purpose of not obtaining profit. It has excellent meanings, fulfilling a goal and not going after gain. However, an LLC does not follow that direction.

So, if your non-profit corporation wants to get shares in an LLC, then the LLC must change its laws and also become a non-profit. 

Generally, a non-profit corporation can become a member of an LLC. It helps to treat the LLC as a subsidiary company. So, your non-profit corporation will enjoy extra benefits. For instance, protecting assets, flexible management, and lots more.

In addition, they are both exempt from taxation. All you need to do is change the management function for the LLC. Ultimately, the LLC will work under your non-profit corporation.

Conclusion

In brief, a corporation can be a member of an LLC legally. However, you need an expert guide to understand better and get help becoming an LLC member. 

Otherwise, you may face troubles, which will lengthen your membership process. In fact, the lack of proper documents may cost you a penalty. 

So, get an expert service provider to ensure your membership is smooth and successful. 

Frequently Asked Questions

Can an LLC be a subsidiary of a corporation?

Yes! You can get an LLC as a subsidiary for your corporation. As a result, your corporation will own the majority of shares and control the LLC. Undoubtedly, choosing an LLC as a subsidiary is a good idea because of its flexibility and ease of management.

Why would a corporation become an LLC?

The benefits of an LLC always attract investors to own one. It has less paperwork and minimal recordkeeping rules compared to a corporation. If you want to avoid the formalities of a corporation, then form or buy shares of an LLC.

Can a nonprofit have an LLC subsidiary?

Yes! A non-profit can have a profit-making subsidiary like an LLC. It can own a few shares or complete shares of an LLC. But you may face pass trough taxation troubles. Because the IRS will attribute the LLC activities to the parent company(non-profit) to check whether the nonprofit is using a subsidiary for exempt purposes.

Max Smith - LLC Formation

He is a seasoned entrepreneur and legal expert at LLC Formation Hub. With a stellar track record in both business and law, Max simplifies the complexities of LLCs. His practical insights, featured on LLC Formation Hub, empower entrepreneurs across the USA. Max merges business finesse with legal acuity to guide businesses toward success.


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