Can an LLC Be a Member of Another LLC?

By Steve Aycock

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.

LLC Formation

All 50 states have LLC laws which typically provide for a wide range of LLC member types. For example, Florida LLC statutes provide for the formation of an LLC by one or more persons, and define a “person” for LLC purposes as “an individual or an entity.” An LLC is formed by filing a form, usually called the articles of organization, with the secretary of state for the state in which the LLC is to be formed. And while an operating agreement is not always required to be filed with the state, it may be prudent to have a written operating agreement that spells out details such as how the LLC is to be operated and how decisions are to be made, for example.

LLC Member Duties

The articles of organization and the operating agreement, if any, may set forth the rights, powers and duties of members and managers in the LLC. LLC members may be managers of the LLC. And, unlike a limited partnership, an LLC permits members to participate in the management of the LLC without losing liability protection. LLC members may vote according to voting rules set forth in the articles of organization or the operating agreement. Many states have default provisions for voting rules if voting rules are not set forth in the articles of organization or the operating agreement.

Ready to start your LLC? Start an LLC Online Now

Tax Issues

One of the advantages of an LLC can be the flow-through tax treatment. An LLC is not taxed as an entity, but rather the profit -- or loss -- flows through to the members of the LLC. For example, if LLC "A" is member of LLC "B," a portion of the profit or loss of LLC "B" will flow through to LLC "A," which will then flow through to the members of LLC "A."

Liability Protection

Another important advantage of an LLC is that members normally enjoy liability protection. The LLC bears liability as a separate entity. In the case of an LLC being a member of another LLC, the member LLC may be protected from liability. The liability protection of an LLC in combination with flow-through tax treatment and virtually no limit on the type of members can give LLCs an advantage over some other entities, such as an S corporation, when it comes to raising money from investors.

Ready to start your LLC? Start an LLC Online Now
Can I Have a Partner With an LLC?


Related articles

Can a Member of an LLC Be Fired?

Managing relationships between owners of a small business can be quite trying at times. In cases of severe disagreement or incompatibility within a limited liability company, firing one or more owners, referred to as members, may be an option. However, generally an LLC may only fire a member when the operating agreement allows it, and if the owner is compensated for his share of the business.

Operating Agreements for a Member-Managed LLC

A limited liability company, or LLC, is a form of business entity often utilized by small businesses. One of the main benefits to operating a business as an LLC is the flexibility of an LLC. Unlike a corporation, which is required by law to have a board of directors, the owners of an LLC, which are called members, have the ability to determine how the LLC will be structured and operated.

What Is the Purpose of an LLC?

The purpose of an LLC is to allow one or more people to operate a business and have liability protection along with certain tax advantages. Another purpose of an LLC is to give business owners an entity that is flexible and easy to maintain, while requiring fewer formalities than other business entities, such as corporations.

LLCs, Corporations, Patents, Attorney Help LLCs

Related articles

Can a Business Own Part of an LLC?

Members of a limited liability company (LLC) can be individuals or business entities, including corporations, trusts or ...

Difference Between LLC & LLP

An important aspect of starting a business is choosing which type of business entity to create. Two popular business ...

General Partnership Vs. LLC

Choosing a proper business structure is one of the crucial steps encountered by owners in the initial stages of ...

Can an S-corp Be a Partner in an LLP?

It is sometimes advantageous for individuals and legal entities such as corporations to form business partnerships ...

Browse by category
Ready to Begin? GET STARTED