Hi there! My name is Maisie, and I’m with Northwest Registered Agent. Today, I’m going to talk to you about why you might want to have an LLC owned by another LLC. LLCs are commonly owned by a single member or a group of members, but they can also be owned by another LLC, which is known as a parent LLC. This may seem a little redundant, but having an LLC owned by another LLC can actually have its benefits. In this article, we’ll discuss the two main reasons why people choose to have an LLC owned by another LLC: asset protection and privacy. We’ll also cover the downsides associated with this arrangement, such as start-up time and costs, and business compliance and annual reports. Don’t worry, we’ll also provide you with the steps on how to form an LLC owned by another LLC. So, if you’re interested in securing your assets and personal privacy, keep on reading!
Benefits of creating an LLC owned by another LLC
Asset protection
Creating an LLC owned by another LLC can provide valuable asset protection for your business. If your business has multiple assets, such as real estate properties or high-risk components like construction projects, creating separate LLCs for each branch of your company can be highly beneficial. Each subsidiary LLC will have its own liability protection, shielding your personal assets and the assets of other branches of your business from potential legal claims or financial losses. This structure allows you to compartmentalize your assets and limit your liability, providing an extra layer of protection for your business.
Privacy
Privacy is another significant benefit of creating an LLC owned by another LLC. In some states like Florida, it is a legal requirement to publicly list all member names on state records and on the articles of organization. However, by forming a parent LLC in a private state and listing that LLC in place of individual names, you can maintain your privacy and keep your personal information off public records. This can be particularly valuable if you prefer to keep your ownership and involvement in the business confidential.
Downsides associated with LLC-Owned LLCs
Start-up time and costs
One of the main downsides of creating an LLC owned by another LLC is the additional start-up time and costs involved. When forming a new LLC, you must comply with each state’s statutes, file the necessary formation documents, and pay the required filing fees. Even if the subsidiary LLC is not an active business like the parent LLC, you still need to fulfill these requirements to maintain its legal status. This can increase the administrative burden and financial expenses associated with setting up and maintaining multiple LLCs.
Business compliance and annual reports
Maintaining compliance with business laws and regulations can be more challenging when you have multiple LLCs. Each subsidiary LLC will be subject to its respective state’s annual reporting requirements and may need to pay annual fees to ensure they remain in good standing. Failing to meet these obligations can result in penalties, fines, or even the dissolution of the LLC. It is essential to stay organized and keep track of the necessary compliance tasks for each LLC to avoid any legal or financial consequences.
How to form an LLC owned LLC
Forming an LLC owned by another LLC follows a similar process to forming a traditional LLC. However, instead of listing an individual’s name as a member, you would list the name of the parent LLC. Here are the general steps to form an LLC owned LLC:
- Determine the state where you want to form the parent LLC: Choose a state to establish the parent LLC with favorable laws and regulations for your business.
- Choose a name for the parent LLC: Select a unique and distinguishable name that complies with the naming requirements of the chosen state.
- File the articles of organization: Prepare and file the articles of organization with the appropriate state agency, providing necessary information such as the name of the parent LLC and its registered agent.
- Draft an operating agreement: Create an operating agreement that outlines the ownership structure, management, and operational procedures of the parent LLC. This document should specify that the parent LLC owns the subsidiary LLC.
- Obtain necessary licenses and permits: Depending on the nature of your business, you may need to obtain additional licenses or permits at the state or local level.
- Register the subsidiary LLC: Once the parent LLC is formed, register the subsidiary LLC by filing the necessary formation documents and paying the required fees in the respective states where you want to establish the subsidiary LLC.
It is important to consult with an attorney or a business formation service to ensure compliance with all legal requirements and to navigate the specific regulations of each state.
Conclusion
Creating an LLC owned by another LLC can offer significant benefits, such as asset protection and privacy. By segregating your business assets and keeping your personal information confidential, you can minimize risks and maintain control over your business. However, it is essential to consider the associated downsides, such as added start-up time, costs, and compliance obligations. If you decide that creating an LLC owned LLC aligns with your business goals, make sure to follow the proper formation process and seek professional guidance to ensure compliance with all legal requirements.