Entrepreneurs and business owners are always looking for ways to protect assets, limit liability, and optimize tax strategies. One powerful but often misunderstood approach is using an LLC to own another LLC.
Yes, an LLC can own another LLC—this structure is known as a parent-subsidiary LLC relationship. It’s used by savvy business owners to separate business operations, manage multiple ventures, and shield assets from liability.
But is it the right strategy for you? In this guide, we’ll cover:
- ✅ How an LLC can own another LLC
- ✅ The advantages and disadvantages of a parent-subsidiary LLC structure
- ✅ Legal and tax implications
- ✅ Smart ways entrepreneurs use this strategy
By the end of this article, you’ll have a clear understanding of whether an LLC owning another LLC makes sense for your business.
Contents
Can an LLC Legally Own Another LLC?
Yes! A Limited Liability Company (LLC) can own another LLC, and it’s a common strategy for business owners who want to separate assets or operations.
Types of LLC Ownership Structures
- Parent-Subsidiary LLC: One LLC (the parent LLC) owns another LLC (subsidiary LLC). This structure is common for companies with multiple business units.
- Holding Company LLC: An LLC is set up solely to own multiple subsidiary LLCs, each handling a separate business operation or asset.
- Series LLC: A special type of LLC (allowed in certain states) where one LLC can create multiple “series” under a single umbrella.
Each structure has unique legal and tax advantages, which we’ll explore below.
The Pros of an LLC Owning Another LLC
Creating a parent-subsidiary LLC structure offers major benefits for entrepreneurs, real estate investors, franchise owners, and those managing multiple businesses.
✅ Increased Liability Protection
Separating businesses into different LLCs limits liability. If one LLC is sued, the other LLCs remain protected.
Example: A business owner operates two separate ventures:
- LLC #1: A consulting business.
- LLC #2: A real estate rental business.
If a tenant sues LLC #2 over a property dispute, the consulting business (LLC #1) remains unaffected.
✅ Separation of Assets
Keeping different business assets in separate LLCs prevents one company’s financial troubles from affecting others.
Example: A trucking company could form a separate LLC for each vehicle. If one truck is involved in a lawsuit, the other vehicles are protected.
✅ Tax Flexibility
LLC owners can choose different tax treatments for each entity, optimizing tax efficiency.
- A holding company LLC might be taxed as an S-Corp to save on self-employment taxes.
- The subsidiary LLCs can remain pass-through entities for simpler tax filings.
✅ Easier Business Expansion
Entrepreneurs using an LLC to own another LLC can expand into new industries without risking existing operations.
Example: A restaurant owner wants to start an e-commerce brand. Instead of using the same LLC, they create a new LLC under a parent company, keeping the two businesses legally separate.
✅ Simplified Branding and Management
A holding company LLC can manage multiple businesses under one umbrella.
Example: A digital agency with separate web design, marketing, and SEO divisions could form a parent LLC that owns separate LLCs for each division.
The Cons of an LLC Owning Another LLC
While the benefits are clear, there are drawbacks to consider before structuring your business this way.
❌ Higher Administrative Costs
Each LLC requires:
- State filing fees
- Annual reports
- Separate tax filings (in some cases)
💡 Solution: Use accounting software or hire a bookkeeper to manage multiple LLCs efficiently.
❌ More Complex Tax Filings
If the parent LLC and subsidiary LLCs elect different tax treatments, filing taxes becomes more complicated.
💡 Solution: Work with a business accountant to ensure tax compliance.
❌ Potential IRS Scrutiny
The IRS may closely examine LLCs transferring money between each other. Improper transfers could trigger double taxation or audits.
💡 Solution: Keep clear records and ensure all transactions are at fair market value.
How to Set Up an LLC That Owns Another LLC
If you’ve decided a parent-subsidiary LLC structure is right for you, here’s how to set it up.
Step 1: Form the Parent LLC
Register a parent company LLC that will own other LLCs. Choose a business-friendly state like Wyoming, Delaware, or Nevada for better asset protection.
Step 2: Form the Subsidiary LLC
Register a separate LLC for each business unit or asset. The ownership structure should list the Parent LLC as the owner.
Step 3: Set Up Proper Business Banking
Each LLC should have its own:
- Business bank account
- Accounting records
- Tax ID (EIN) if needed
Step 4: Draft an Operating Agreement
Clearly outline the relationship between the parent and subsidiary LLCs, including:
- Ownership percentages
- Profit distributions
- Management responsibilities
Step 5: Maintain Corporate Formalities
To keep liability protection intact:
- Hold separate LLC meetings
- Avoid mixing finances between LLCs
- Sign contracts under the correct LLC
Smart Ways to Use an LLC to Own Another LLC
🏢 Real Estate Investors
Each rental property is owned by a separate LLC under a parent holding company.
📈 Serial Entrepreneurs
Each business venture operates under a separate LLC, preventing financial cross-contamination.
🛍 E-Commerce & Franchises
A parent LLC manages multiple brands, stores, or franchise locations.
Is a Parent-Subsidiary LLC Right for You?
For business owners managing multiple ventures, high-value assets, or expansion plans, having an LLC own another LLC is a smart strategy.
✅ Choose a Parent-Subsidiary LLC Structure If:
- You own multiple businesses or investment properties.
- You want stronger liability protection.
- You need separate tax structures for different entities.
By structuring your business properly, you can protect your assets, simplify expansion, and optimize your taxes.
