Can a Corporation Be a Member of an LLC?

By Cindy DeRuyter, J.D.

Can a Corporation Be a Member of an LLC?

By Cindy DeRuyter, J.D.

A limited liability company (LLC) is a form of business ownership created under state law. Owners of the business, known as "members" of the LLC, share in the company's profits and losses to the extent of their membership rights. An operating agreement defines those rights.

Businesspeople sitting in circle with pads of paper on laps

Generally speaking, both individuals and other types of business entities, including corporations, can own membership interests in an LLC.

Characteristics of LLCs

LLCs are a popular choice for forming new businesses. They offer members liability protection, shielding the business owners' personal assets from the reach of creditors or those seeking judgments against the business. Also, LLCs generally do not need to observe the same types of formalities as corporations.

LLCs, whether owned by a single member or by two or more individuals or businesses, are "pass-through" or "disregarded" entities for tax purposes unless the owners choose corporate tax treatment. Corporate tax treatment is only available for LLCs that meet Internal Revenue Service requirements for such tax treatment. Because an LLC is a disregarded entity, profits and losses are passed through to the members' individual (or corporate) tax returns. The LLC itself is not responsible for filing and paying income taxes at the business level.

Why a Corporation Might Be an LLC Member

It may make sense for a corporation to become a member of an LLC for many reasons. One common scenario involves a corporation that decides to create and own another corporation established as a holding company. That holding company, in turn, owns shares of an LLC, which is established as an operating company.

Businesses may take this approach in an effort to obtain further liability protection. The holding company, as a member of the LLC, is only liable for obligations to the extent of its ownership interest in the LLC. In turn, as long as the business adheres to the required corporate formalities, the parent company's assets are also protected from the reach of judgment creditors at the holding company level.

Special Rules for PLLCs

The general rule that a corporation can own an LLC does not apply universally in the case of professional limited liability companies (PLLCs) owned by legal, medical, and other professionals. In states that recognize PLLCs and that require that PLLC members to hold licenses or registrations in their respective fields, a corporation may not hold an ownership interest in an LLC.

State-Specific Requirements

In some states, LLCs must disclose information about each member and manager to the Secretary of State's office or other business authority. This provides a level of transparency for the public so they can discern who they are dealing with when conducting business with the LLC. Other states impose a disclosure requirement for members who own more than a nominal interest in the LLC.

In the case of an LLC owned by one or more corporations, disclosure requirements vary. LLC managers must understand and adhere to their state's laws. When in doubt, contacting your state's business registration authority or a business attorney qualified to advise you on your obligations may help you with the process.

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.