One LLC can own another LLC in whole or in part and this can be achieved using a series LLC structure. A series LLC is an LLC that has the added capability to create cells or subsidiary LLCs that all form part of the framework of a single LLC. This structure is typically used for the asset protection which it provides to prevent liability on behalf of the owner as well as the ability to effectively insulate a business from liabilities that may be caused by another business.
States have not always allowed for the creation of series LLCs and before they were allowed to be created business owners would need a separate LLC for each of their businesses or properties. This was necessary to protect each business or property from the liability that the other businesses or properties may incur. Thanks to the creation of the series LLC business owners may now protect their businesses from one another liabilities through the creation of a single series LLC.
Over 1 million businesses were opened between March 2019 and March 2020 according to the US Small Business Administration. Part of the reason for this tremendous number of businesses is that business owners and investors are using series LLCs to streamline their operations and reduce risk.
Benefits of an LLC
An LLC or limited liability company has many advantages including pass-through taxation and lower formal requirements in comparison to a corporation. The main benefit of an LLC is the provision of limited liability asset protection. This creates protection for the company and the company owner. This is achieved by limiting the liability of the company to the assets which the company owns. This means that if the company goes into debt only the assets of the company can be used to pay back creditors and not the assets of the owner. Similarly, if the owner goes into debt the assets of the business cannot be claimed by creditors as they are part of a separate legal entity.
Series LLC Functionality
To explain how a series LLC functions an example will be used. An individual owns two businesses each of which functions independently of the other. If both of these businesses are personally owned then the owner will be held personally liable for any liability that each of the businesses may incur. This will also mean that the business’s assets and the owner’s assets will all be at risk in the case of debt or other liabilities. If a traditional single LLC is used to own both of these businesses then this will separate the owner from the liability of these entities but it will not separate each business from the liabilities of the other.
This is where the series LLC is most useful. The business owner can create a new LLC to become the parent LLC of their businesses. This can be done utilizing specialized language which facilitates the creation of subsidiary LLCs. The business owner can then create two more LLCs for each of their businesses. Both of these subsidiary LLCs will be owned by the parent LLC. As a result of this structure, if one of the businesses is issued for wrongdoing the other business and the personal assets of the owner will not be at risk in the lawsuit. Only the assets of the LLC which is facing the lawsuit will be liable if the lawsuit does not go in favour of the company. This high level of asset protection can only be obtained by creating multiple LLCs for each business venture or by creating a single series LLC. A series LLC is a superior solution as it reduces the inefficiencies and cost of creating multiple LLCs.
The Advantages of Series LLCs
Series LLCs have two main advantages other than the reduction of inefficiencies which it can offer business owners or investors.
Ease of Taxation
If an individual owns multiple LLCs they will be required to fill out a tax return for each LLC independently. This can be an inconvenient process especially if an individual owns a large number of LLCs. If the LLCs are owned using a series LLC structure the owner will only need to file a single tax return as the profits and losses of the subsidiary LLCs will be passed through to the parent LLC. This benefit is a result of single-member LLCs which means that an LLC only has one owner. As the subsidiary LLCs will be owned entirely by the parent LLC they will be single-member LLCs. Single-member LLCs do not need to file a tax return as the income which they generate is passed through to the owner or in this case the parent LLC. This means that the income which the subsidiary LLCs generate will be reflected on the tax return of the owner of the parent LLC or the parent LLC itself. As a result of the way that tax functions for LLCs, the owner of multiple LLCs will greatly benefit from the simplicity of taxation that a series LLC will provide.
Limited Liability Between Companies
An individual who owns multiple businesses or a business with multiple business operations should consider establishing an individual LLC for each business or business operation. This is because this would separate the liability of each business from each other business and would not allow one business to place another business at risk. If an individual owned and operated multiple businesses from a single LLC then the other businesses could be liable if one of the businesses is sued or goes into debt. Separating the businesses through multiple LLCs will protect the businesses from each other’s liabilities as they would only be liable for their own obligations. If one business is sued or goes into debt the other businesses and the owner’s personal assets would be protected from any financial harm that this may cause.
For more information on LLCs and series LLCs consider going here.
Final Thoughts
One LLC can own another LLC and this is accomplished through the creation of a series LLC. This structure functions as the parent LLC to the subsidiary LLCs and provides multiple benefits to its owner. The first benefit is simplified taxation as only the owner of the parent LLC or the parent LLC itself will have to file a tax return. The second main benefit is that each separate subsidiary LLC will be protected from the liability of the other subsidiary LLCs. This creates a greater degree of convenience for the owner as well as increased peace of mind to know that each business is safe from any liabilities which the other businesses may incur.