Parent LLC Vs. Stand-Alone LLC

By Tom Streissguth

A limited liability company protects its members from liability for business debts. The LLC also provides a simple tax life for members: the company is not taxed separately and passes income directly to the members, who report earnings on their personal tax returns. One LLC can own another LLC -- or several of them -- as a subsidiary. There are upsides and downsides to these arrangements that members should consider.

A limited liability company protects its members from liability for business debts. The LLC also provides a simple tax life for members: the company is not taxed separately and passes income directly to the members, who report earnings on their personal tax returns. One LLC can own another LLC -- or several of them -- as a subsidiary. There are upsides and downsides to these arrangements that members should consider.

Parents and Subsidiaries

A stand-alone LLC has no parents or subsidiaries of its own, while a parent LLC has subsidiaries. The purpose of a subsidiary relationship is to protect one business unit from legal or financial problems in another. If the parent unit does not take an active role in the day-to-day operations of the subsidiary, for example, then any claims against the subsidiary should only affect that division of the organization. If a subsidiary turns unprofitable or runs into financial trouble, it can be wound up and disbanded while leaving the parent, and other subsidiaries, unaffected.

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Subsidiary Operations

Setting up subsidiary LLCs is easier, in terms of regulation and legal filings, than setting up affiliated corporations. A parent LLC also has flexibility and options in operating its business through a subsidiary. The parent can lease equipment, operate manufacturing facilities, buy and sell real estate, loan money, and set up a sales network, all through a subsidiary company. By writing up operating agreements with the subsidiary, the LLC parent also can define the exact nature of the relationship, making it easier to defend itself from any creditor claims against subsidiaries.

Standing Alone

A stand-alone LLC benefits from a simpler corporate structure than a parent/subsidiary structure. The single LLC only needs to register once, and renew annually, with the state agency that registers businesses and clears business names. Financial statements and bookkeeping are streamlined, and the simpler structure makes it easier to negotiate with banks for loans, handle insurance needs, file taxes and market the business.

The Series LLC

Some states allow the formation of a series LLC, a single business that functions in the same way as a "holding company." The series LLC sets up separate divisions through changes to the company's operating agreement, not by setting up entirely new LLCs as subsidiaries. A real estate investment firm, for example, may structure a series LLC to handle separate lines of business: apartments, single-family homes and business property. For liability purposes, the assets of one division are protected from claims against another. Not all states recognize this structure, however, and the tax treatment of such a business would be considerably more complex than for a stand-alone LLC.

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The Advantages of a Subsidiary Corporation

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Typical LLC Structures

Starting your own business involves choosing the right legal structure to operate it. A limited liability company, or LLC, is a type of legal structure that is right for many businesses because of its flexibility. Depending on your business needs, your LLC can be primarily structured around the number of owners, how it is to be managed and organized, or tax planning considerations.

LLC Liability Protection

A limited liability company, or LLC, is a type of business entity that differs from a corporation or partnership in that it is intended to protect its members against personal liability. LLCs also enjoy certain tax advantages that lessen paperwork requirements and the likelihood of tax errors and liability. LLCs are not completely immune from liability, however, and LLC members should take certain precautions to preserve the LLC's limited liability status.

What Is the Difference Between a Series LLC & a Restricted LLC?

The relative newness of the limited liability company business structure has allowed some states to create innovative types of LLCs that offer unique business options and special tax benefits. The series LLC and restricted LLC are among these innovations. LLCs in general are formed under state law and combine the tax benefits of a partnership with the limited liability of a corporation. Each state has its own LLC statute that contains similar but not identical provisions.

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