Starting and running a business as a Limited Liability Company (LLC) offers some advantages to business owners who want liability protection, taxation flexibility, and credibility without complexity. Next to a Sole Proprietorship, it’s the business legal structure that’s least complicated and void of cumbersome formality. But if you’ve already incorporated a business, can that entity be a member of your LLC? And what could that accomplish for you?
Yes! Your corporation can be a member of your LLC.
All states allow for other types of business entities (not only individuals) to serve as members of LLCs. Generally, there are very few restrictions limiting a corporation from being an LLC member. A corporation doesn’t even have to be incorporated in the same state as the one in which the LLC is organized.
In What Situations Does it Make Sense?
By having your corporation as a member of your LLC, you create an additional level of ownership, which may enable you to offer traditional perks such as retirement plans and give you added protection from liability. Like individuals who are members/owners of LLCs, corporate LLC owners can also take advantage of pass-through federal tax treatment.
Probably the most common situation in which a corporation will serve as a member of an LLC is in the scenario of a business owner creating a holding company and an operating company. The holding company owns all of the business assets and then leases them to the operating company, which uses them to run the business. In such a situation, a corporation could be the holding company and be a member of the LLC, which would be the operating company.
What Restrictions and Requirements Apply?
Although most states don’t place many requirements on members of an LLC, some do more closely regulate membership in a Professional Limited Liability Company (PLLC). Members of PLLCs (LLCs formed to offer professional services) often must be licensed professionals in their fields, therefore preventing corporations from serving as members of PLLCs.
Depending on which state you operate in, you may or may not need to disclose who your LLC’s members are. While some states don’t mandate an LLC to disclose its members, others demand that the LLC disclose its managers. So if an LLC is member-managed, it needs to disclose its members. Where required to disclose its membership, an LLC with a corporation that is a member will need to provide the corporation’s name, physical address, and percentage of ownership in the LLC.
Can We Help?
As you’re starting a business or considering changes to your existing company’s legal structure, make sure you get guidance from professionals who have your best interests at heart. And if you want to make sure all your business registration and other compliance tasks are taken care of correctly, remember CorpNet is here to help make the process as simple and cost-effective as possible. Call for a free business consultation at 888.449.2638
