Can a Business Own Part of an LLC?

By Angela Floyd

Members of a limited liability company (LLC) can be individuals or business entities, including corporations, trusts or even other LLCs. Your existing business may want to form a new LLC as an investment or to spread out and protect your business’ assets or liabilities. Your business entity may either be the single member of the new LLC or may share ownership with other businesses or individuals. Most states have very few restrictions on LLC ownership.

Limited Liability Basics

A limited liability company is a state-based business structure. LLCs provide owners, called members, with limited personal liability for the debts and actions of the LLC. So, if the LLC has incurred debt or faces a lawsuit, only the assets of the LLC itself are at risk, not the members’ individual assets (unless an LLC member has engaged in illegal, reckless or unethical behavior). This liability protection is the typical reason a business entity forms a new LLC, whether for a particular project, a series of related projects or for any business ventures or purposes. When a business entity becomes a member of a new LLC, the business entity member is not liable for the debts of that new LLC. Only the assets of the new LLC are at risk.

Ownership and Operations

When an LLC is owned by one or more business entities, it is typically governed by the owners of the business entities. How this governance works is up to all of the LLC members. Ownership interest does not have to correspond with financial contribution or with how much work each owner does. You should set out member rights and responsibilities through an operating agreement. A typical operating agreement includes percentage interests in the business, voting power and requirements, division of liabilities and assets, management directives, meeting rules, dissolution procedures and buyout provisions.

Ready to start your LLC? Start an LLC Online Now


Just as with individual members, business entity members of an LLC can either be active or passive. Members that actively and continuously manage the company are called “member managers.” Passive members generally do not take part in management and usually limit their involvement to monetary investment. The IRS taxes the profits of passive and member managers differently. Check with the IRS to determine the tax consequences for your LLC ownership and management.


States do impose a few restrictions on LLCs. Some types of businesses simply cannot be LLCs, including banks and insurance companies. In addition, some states have what are called “professional LLCs” in which all members, including owners of the business entity member, may need to hold a professional license related to the LLC’s specific business. There are also restrictions for foreign LLCs. For instance, a group of business entities wants to form an LLC in the state where the venture or project will be located, but none of the entities are from the state. You may want to seek the assistance of a lawyer to better understand the business and tax implications of forming a foreign versus a domestic LLC.

Ready to start your LLC? Start an LLC Online Now
Can a Member of an LLC Be Fired?


Related articles

Adding Partners to an LLC

A limited liability company, or LLC, may be formed with any number of partners, called members. New members may be added for a variety of reasons, such as wanting more capital to grow the business, needing someone with expertise in a new business area, or replacing a member who has retired or resigned. The requirements for adding a new partner depend on whether the LLC has one or more members, and the state where the LLC is registered.

General Partnership Vs. LLC

Choosing a proper business structure is one of the crucial steps encountered by owners in the initial stages of operating a company. One option is to structure the business as a limited liability company; another route is formation as a general partnership. Differences in tax liability, as well as personal liability for members regarding debts and other legal obligations, are the defining characteristics of what separate these designations.

Can an LLC Be a Member of Another LLC?

In most states, LLC members can be individuals -- either residents, out-of-state residents or out-of-country foreigners -- corporations, other LLCs, trusts and pensions plans. So, unlike an S corporation, which imposes limitations on the type of owners, an LLC can have virtually any type of members.

LLCs, Corporations, Patents, Attorney Help LLCs

Related articles

Illinois LLC Operating Agreement

Illinois state statutes 805 ILCS 180 Limited Liability Company Act Sec. 15-5 defines the operating agreement as the ...

Can an LLC Be an Individual or Sole Proprietor?

A limited liability company is a common business structure which combines the limited liability of a corporation with ...

How to Add a Partner to a LLC Using Sweat Equity

The existing members of a LLC have great flexibility to establish the procedures for the admittance of new members. As ...

Can I Change the Owners of an LLC?

A limited liability company (LLC) is a type of business entity that is owned by its members. The members are typically ...

Browse by category
Ready to Begin? GET STARTED