Can a C Corporation Own an LLC: Everything You Need to Know
Can a C corporation own an LLC? This is a question on many business owner's minds. Here are some factors to consider when thinking about doing this.3 min read
Can a C corporation own an LLC? This is a question on many business owner's minds. Here are some factors to consider when thinking about doing this.
What is an LLC?
There are no directors in LLCs. However, they can have members, who are the equivalent of stockholders. These members, or managers, oversee operations. Managers are similar to directors and sometimes can be organized like a board.
There can also be true officers in an LLC. The LLC statutes do not give them much attention, so the officer responsibilities and roles will need to be defined in the operating agreement. There are no restrictions on ownership, making LLCs unique. LLCs can be owned by corporations, individuals, foreign entities, or other LLCs.
LLCs can be formed by corporations to perform a variety of duties. The owner of an LLC is called a member. The LLC legally protects each member. Corporation members have extra protection because of their affiliate and incorporation with the LLC. An operating agreement is often formed by an attorney and gets filed with the Corporations Commissioner or Secretary of State. This has details about how crucial decisions get made on behalf of the entity.
An LLC, or limited liability company, is a business organization that the state statute authorizes. A member of an LLC needs to be the age of the majority, which is typically 18 years old. There are no citizenship requirements that states place on an individual or corporation that want to be an LLC member.
Requirements for a Corporation Owning an LLC
There should be a board of directors in a C corporation who aren't owners of the LLC. Pay is through bonuses instead of aggregate expenses of the LLCs or salaries. A separate account book must be had for each one. In the state of Texas, a C corporation can be the only member. However, there still needs to be a registered agent for the LLC.
Benefits of a Corporation Owning an LLC
There are many reasons for a C corporation owning an LLC. These include:
- No need to formalize dedicated teams.
- No need to report what the company is working on to the public.
- Formation is already set if the product takes off.
- Team can be cycled to different efforts while expenses are separated.
If an LLC has just one member, or the C corporation parent, they will be disregarded when it comes to taxes. All LLC expenses and revenue gets reflected on the parent's tax return. If there are multiple members in an LLC, such as in a joint venture, the LLC's expenses and revenue will be distributed as it's set out in the operating agreement.
The C corporation parent directors can be the managers of an LLC subsidiary, whether it's a joint venture or wholly owned. Courts let the LLC structure be similar to a corporation. This is particularly true when there is one that has a board of managers, as this is similar to a corporate board of directors.
This means the LLC will be subject to the same duties as a corporation, and the obligations to the members will be equal to the obligation a board owes its shareholders. This can be an issue sometimes, especially in ventures where each venturer has an independent operation.
It's beneficial for a corporation to form an LLC when they're launching a new initiative or division. Various ideas can be tested through the LLC and the corporation can decide to adopt them as part of the corporation if the project is successful. The income of the LLC would pass-through to the C corporation. They would report any profits or losses on their own tax return.
How to Form an LLC
A corporation needs to file an Articles of Organization with the Secretary of State in order to get recognition legally as an LLC. Articles of Organization have the names of the members who are forming the LLC included, as well as the name of the LLC and their registered agent. The registered agent is normally the corporation's law firm or legal department and are in charge of responding to legal notices.
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