Quick Answer: Yes, an LLC can absolutely own another LLC. This parent-subsidiary structure is legal in all 50 states and offers significant benefits for asset protection, tax optimization, and business scalability.
Whether you’re a digital nomad managing multiple income streams from abroad or a remote entrepreneur looking to scale operations, understanding LLC ownership structures can transform how you protect assets and optimize taxes.
Why LLCs Can Own Other LLCs: The Legal Foundation
An LLC with only one member is treated as an entity that is disregarded as separate from its owner for income tax purposes (but as a separate entity for purposes of employment tax and certain excise taxes). This IRS rule, outlined in Publication 3402, forms the foundation for parent-subsidiary LLC structures.
Every state’s LLC statute permits LLCs to own membership interests in other LLCs. This creates a powerful tool for entrepreneurs to:
- Isolate different business risks
- Optimize state and federal taxes
- Scale operations efficiently
- Protect valuable assets
7 Strategic Reasons to Create Parent-Subsidiary LLC Structures
1. Asset Protection Through Risk Isolation
Creating separate LLCs for different business activities provides multiple layers of protection. When properly maintained, each LLC acts as a legal firewall, preventing liabilities from spreading across your business empire.
Example: A remote marketing consultant who also owns rental properties can:
- Place consulting operations in one LLC
- Hold each rental property in separate subsidiary LLCs
- Ensure a tenant lawsuit can’t touch consulting income
- Protect real estate from professional liability claims
2. Tax Optimization Across States
Different states offer vastly different tax environments. Nevada, Ohio, Texas, and Washington impose gross receipts taxes instead of corporate income taxes. By strategically placing subsidiaries, you can minimize overall tax burden.
Tax-Friendly States for LLCs:
- Wyoming: No state income tax, $60 annual fee
- Nevada: No state income tax, strong asset protection
- Delaware: Sophisticated business courts, flexible LLC laws
- Florida: No personal income tax ($800 annual franchise tax plus an additional fee for LLCs earning over $250,000 in California by comparison)
3. Simplified Business Sales and Acquisitions
Subsidiary structures make buying or selling business units cleaner:
- Sell individual subsidiaries without affecting other operations
- Purchase businesses through subsidiaries to isolate liabilities
- Maintain cleaner due diligence documentation
- Achieve higher valuations through organized structures
4. Flexible Investment Opportunities
Investors often prefer clean subsidiary structures because they:
- Allow targeted investment in specific business lines
- Provide clear equity stakes without diluting other operations
- Enable different investor groups for different ventures
- Simplify cap table management
5. Operational Efficiency
Separate subsidiaries enable:
- Dedicated management teams for each business line
- Clear profit/loss tracking by entity
- Independent vendor relationships
- Separate credit lines and banking
6. Regulatory Compliance
Different business activities may require different licenses or registrations. Subsidiaries help by:
- Isolating regulated activities (like financial services)
- Maintaining required licenses without affecting the entire business
- Simplifying compliance reporting
7. International Business Structuring
For digital nomads operating globally, subsidiary structures can:
- Separate domestic and international income
- Utilize tax treaties through proper structuring
- Comply with foreign business requirements
- Manage currency and transfer pricing efficiently
Step-by-Step Guide: How to Create an LLC Subsidiary
Step 1: Form Your Parent LLC
- Choose Your State: Consider Wyoming, Nevada, or Delaware for parent LLCs
- File Articles of Organization: Costs range from $50-$500 depending on state
- Obtain an EIN: Free from the IRS website
- Draft Operating Agreement: Include provisions for owning subsidiaries
Step 2: Create Your Subsidiary LLC
- File Formation Documents: List parent LLC as the member
- Obtain Separate EIN: Each entity needs its own EIN for employment tax and certain excise taxes
- Draft Subsidiary Operating Agreement: Must acknowledge parent ownership
- Document Ownership: Issue membership certificates to parent LLC
Step 3: Maintain Proper Separation
Critical for preserving liability protection:
- Separate Bank Accounts: Each LLC needs its own accounts
- Distinct Operating Agreements: Customize for each entity’s needs
- Regular Meetings: Document major decisions
- Arm’s Length Transactions: Inter-company dealings at market rates
Step 4: Handle Tax Elections
File appropriate elections with the IRS:
- Form 8832: For entity classification election
- Form 2553: For S-Corp election if desired
- State Tax Registrations: Each state has unique requirements
Tax Implications of LLC Subsidiary Structures
Federal Tax Treatment
For income tax purposes, an LLC with only one member is treated as an entity disregarded as separate from its owner, unless it files Form 8832 and elects to be treated as a corporation.
This means:
- Single-member subsidiary LLCs are typically “disregarded entities”
- Income flows through to parent LLC without separate filing
- Multi-member subsidiaries default to partnership taxation
- Corporate elections available for different tax strategies
State Tax Considerations
State taxes vary dramatically. For example:
- California: $800 annual franchise tax plus an additional fee for LLCs earning over $250,000
- Texas: No income tax but franchise tax based on margin (0.375% for retail/wholesale, 0.75% for others on revenue over $2,470,000)
- New York: Annual filing fee ranging from $25 to $4,500 depending on gross income
For current state tax rates and requirements, consult:
International Considerations
For digital nomads with foreign operations:
- Be aware of Controlled Foreign Corporation (CFC) rules
- Consider tax treaty benefits
- Understand transfer pricing requirements
- File Form 5472 for foreign-owned LLCs
Common Pitfalls to Avoid
1. Commingling Funds
Never mix finances between entities. Courts can “pierce the corporate veil” if you don’t maintain separation.
2. Inadequate Documentation
Every inter-company transaction needs proper documentation at fair market value.
3. Ignoring State Registration
Operating in multiple states requires foreign LLC registration in each state where you do business.
4. Missing Tax Elections
Some elections have strict deadlines (like the 75-day window for S-Corp election). Missing these can cost thousands in unnecessary taxes.
5. DIY Legal Documents
Generic templates rarely address the complexities of parent-subsidiary relationships. Invest in proper legal counsel.
State-by-State Considerations
Best States for Parent LLCs
Wyoming
- No state income tax
- $60 annual fee
- Strong privacy laws
- Asset protection features
Nevada
- No state income tax
- Enhanced privacy protection
- Charging order protection
- No information sharing with IRS
Delaware
- Sophisticated Court of Chancery
- Flexible operating agreement terms
- Respected nationwide
- Series LLC option available
High-Tax States to Consider Carefully
California
- 8.84% corporate tax rate
- $800 minimum franchise tax
- Aggressive tax enforcement
- Additional LLC fees based on revenue
New York
- Complex tax structure
- NYC additional taxes
- Publication requirements
- High compliance costs
Real-World Case Study
Background: James, a location-independent software developer, built three distinct revenue streams:
- SaaS product generating $500K annually
- Freelance consulting bringing in $200K
- Online course sales of $150K
Solution: James created:
- Parent LLC in Wyoming (holding company)
- Delaware LLC for SaaS (planning to raise capital)
- Wyoming LLC for consulting (tax optimization)
- Nevada LLC for course sales (asset protection)
Results:
- Saved $35K annually in taxes through strategic structuring
- Protected SaaS assets when a consulting client sued
- Successfully raised $1M for SaaS without diluting other businesses
- Sold course business for $500K without affecting other operations
Frequently Asked Questions
Can an LLC own 100% of another LLC?
Yes, an LLC can own 100% of another LLC, creating a single-member subsidiary that’s typically treated as a disregarded entity for tax purposes.
How many LLCs can an LLC own?
There’s no legal limit. Some holding companies own dozens of subsidiaries, though each requires separate formation, compliance, and maintenance.
Can an LLC own an LLC in a different state?
Yes, this is common for multi-state operations. The subsidiary must register in its home state, and the parent may need to register as a foreign LLC if doing business there.
Do I need separate bank accounts for each LLC?
Absolutely. Maintaining separate bank accounts is crucial for preserving limited liability protection and avoiding “piercing the corporate veil.”
What’s the difference between a Series LLC and parent-subsidiary structure?
A Series LLC is one entity with internal divisions (only available in certain states), while parent-subsidiary involves multiple separate legal entities. Parent-subsidiary structures are recognized nationwide.
Can a single-member LLC own another single-member LLC?
Yes, and both would typically be treated as disregarded entities, with income flowing through to the ultimate owner for tax purposes.
What are the annual costs of maintaining multiple LLCs?
Costs vary by state but typically include annual report fees ($50-$500), registered agent services ($50-$300), and any franchise taxes or minimum fees.
Take Action: Build Your Optimal LLC Structure
Creating a parent-subsidiary LLC structure is a powerful strategy for remote entrepreneurs looking to protect assets, optimize taxes, and scale efficiently. However, proper implementation requires careful planning and ongoing compliance.
Next Steps:
- Assess Your Needs: List your business activities and liability concerns
- Choose Jurisdictions: Research state-specific LLC requirements
- Consult Professionals: Work with attorneys and CPAs familiar with multi-entity structures
- Implement Properly: Form entities with proper documentation
- Maintain Compliance: Keep up with annual requirements
Ready to Get Started?
BusinessAnywhere specializes in helping remote entrepreneurs and digital nomads establish optimal business structures. Our services include:
- Multi-state LLC formation
- Registered agent services nationwide
- Custom operating agreements for parent-subsidiary relationships
- Ongoing compliance support
Need guidance? Book a free consultation to discuss your specific situation and get personalized recommendations for your business structure.
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Disclaimer: This article provides general information and should not be construed as legal or tax advice. Tax laws and regulations change frequently. Consult with qualified professionals before making entity structure decisions.
