Can an S Corporation Be a Member of an LLC?

By Stephanie Kurose, J.D.

Can an S Corporation Be a Member of an LLC?

By Stephanie Kurose, J.D.

A limited liability company, or LLC, is a common type of business entity that provides its owners, called members, with management flexibility and personal liability protection. An LLC must have at least one member, but can have an unlimited amount of members if it's a particularly big or complex company. An LLC member is an individual or other business entity, like an S corporation.

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LLC Basics

An LLC is a hybrid between a partnership and a corporation. Like a partnership, its members have management and operational flexibility. For example, LLCs are not required to have a board of directors or hold annual meetings. Additionally, the Internal Revenue Service (IRS) allows LLCs the choice of being taxed as a partnership or a corporation. LLC members can also decide among themselves how much of the business each member owns regardless of how much money they initially invest into the company.

Similar to a corporation, an LLC provides its members with personal liability protection in the event the LLC is ever involved in litigation. This means that if the LLC is liable to a creditor, it can only reach a member's contribution to the business; it can't touch any personal assets.

There are virtually no restrictions on who or what type of entity is a member of an LLC.

S Corporation Basics

An S corporation is essentially no different from a C, or standard corporation, except for how it's taxed by the federal government. If a corporation meets certain requirements, it can opt for taxation as an S corporation. S corporation shareholders can only be individuals, certain trusts or estates, or certain nonprofit or charitable organizations. Shareholders are also U.S. citizens or legal residents. An S corporation can have no more than 100 shareholders and can only issue one class of stock.

Advantages of Owning an LLC

S corporations and LLCs are both given similar tax treatment options, so there is seldom any tax benefit for an S corporation to own an LLC. However, the overall flexibility of LLCs is an attractive feature. If an S corporation decided it wanted to branch out with a new product or marketing opportunity, it may decide it wants to create an LLC for that specific purpose. It can then be the sole member of the company or add more members who can bring their set of unique skills to the table. Because of the flexibility offered by an LLC, the S corporation owner does not need to worry about holding regular board or shareholder meetings or complying with other formal requirements to which corporations must adhere.

Business regulation is often under state jurisdiction. Thus, they must follow the laws for the state in which they're operating. For more information on what your state requires, reach out to an online service provider who can help answer any questions you may have.

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.

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