Can a Corporation Be A Member of an LLC: Everything You Need to Know
Can a corporation be a member of an LLC? Yes, limited liability companies are permitted by the state to have members (owners) who are individuals and/or other business entities. 3 min read
2. Requirements and Restrictions for S Corp Ownership
3. LLC Ownership
4. LLC Ownership of S Corp
Updated November 19, 2020:
Can a corporation be a member of an LLC? Yes, limited liability companies are permitted by the state to have members (owners) who are individuals and/or other business entities.
Who Can Be a Member of an LLC?
- Business trusts
- Estates and trusts
- Other LLCs
- Joint ventures
- Public Corporations
- Government subdivisions
- Any legal or commercial entities
Corporations and LLCs fall into different categories of business entities with different legal and financial rules under the state legislature. S Corporations are not actually business entities, like LLCs are, but they are a type of tax classification that LLCs and corporations can actually elect by filling out Form 2553 with the IRS.
S Corps and other corporations can be members by owning full or partial stock or interest in an LLC.
States do not put very many restrictions on LLCs and their membership options. A corporation can not only be a member of an LLC but also isn't even required to be incorporated in the state that the LLC was formed in.
LLCs can be formed by one or multiple members creating either a single-member LLC or multiple-member LLC. If an individual wish to form an LLC, they just simply file articles of organization with the Secretary of State (SOS). LLCs are regulated under state law in the state in which they were formed.
When a corporation acts as a member of an LLC, it holds the interest in the company and creates another layer of protection from liability of the shareholders of the corporation. The corporation's assets and subsidiary obligations are all protected through the liability protections within the LLC and within the corporation itself.
Requirements and Restrictions for S Corp Ownership
S Corps are classified as disregarded entities and are therefore not subject to corporate taxes. In order for an LLC or any business entity to gain S Corp tax status (or subchapter S treatment), these rules must be followed:
- The entity may not have more than 100 members, owners, or shareholders.
- All members, owners, or shareholders must be state residents and citizens of the United States.
- The entity must be legally formed with the Secretary of State or appropriate state division.
- The entity cannot be an insurance company, bank, or certain other business types.
LLCs do not have many regulations for their membership, but PLLCs (professional limited liability companies) are required to only have licensed professionals in the field in which the company plans to offer services as members. So, corporations cannot act as members of a PLLC.
Certain states don't require an LLC to list all of its members in its articles of organization. Some states don't require a list of members but many do require a list of managers.
Member-managed LLCs are managed by their members, so this type of LLC would end up having to list its members, as they're all managers. Manager-managed LLCs hire a third-party manager or appoint an individual from among their members to act as a manager.
If a corporation is a member of an LLC, the corporation's business name, address, and ownership percentage will need to be listed in the articles of organization.
Basically any individual or company is permitted to file articles of organization with the state and therefore form a legal LLC.
Unless you are seeking S Corp tax status or trying to form a PLLC, you essentially have total freedom when seeking members to join your LLC. The loose member regulations and liability protection offered with an LLC actually makes it fairly easy to find members, because the risk is low.
LLC Ownership of S Corp
LLCs cannot own any shares in an S Corp because the IRS has put much heavier restrictions on the shareholder requirements for S Corps.
Only single-member LLCs may act as a shareholder in an S Corp, but LLCs with multiple members are not allowed. Because of these rules, LLCs frequently cannot qualify for S Corp taxation classification.
These limitations show why an LLC might want to actually be owned by an S Corp, rather than the other way around.
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