Key Takeaways

  • A member LLC refers to an LLC that owns all or part of another LLC, known as a “parent-subsidiary” or “holding” structure.
  • Most states allow LLCs to be members of other LLCs, alongside individuals, corporations, trusts, or other entities.
  • This structure can help with asset protection, liability separation, and tax planning.
  • LLC members may be active (managing) or passive (investing) owners, depending on the operating agreement.
  • Single-member LLCs have one owner and simpler tax reporting, while multi-member LLCs share profits, losses, and decision-making responsibilities.
  • The operating agreement defines voting rights, distributions, management roles, and profit allocation—especially important when another LLC is a member.

LLC Formation

An LLC can be a member of an LLC. Most state laws provide a range of options for LLC members or "persons" including individuals and business entities. 

If you want to form an LLC you must contact the Secretary of State (SOS) in your state and file articles of organization.

Operating agreements are not always required by the SOS, but they are a good idea when starting any business to help ensure smooth operations. These are written agreements that lay out the plans for the company, responsibilities of members, and plans to handle any major issues. 

What Does It Mean for an LLC to Be a Member LLC?

A member LLC means one limited liability company owns an interest in another LLC. This structure is common in real estate, joint ventures, and holding company arrangements. The “parent” LLC may own part or all of the “subsidiary” LLC, creating a tiered ownership system.

This arrangement allows business owners to separate liabilities and simplify ownership management. For instance, a holding LLC might own several “child” LLCs—each managing a distinct property, product line, or location. If one subsidiary faces a lawsuit or debt, the others remain protected.

Key advantages of a member LLC structure include:

  • Limited liability continuity: Each entity shields its owners and affiliated LLCs from direct exposure to debts and lawsuits.
  • Simplified ownership transfer: The parent LLC’s membership interests can be sold or transferred without restructuring the underlying subsidiary.
  • Tax flexibility: The IRS allows multi-layered LLCs to elect pass-through or corporate taxation depending on business needs.

This structure must comply with state-specific formation laws and should be carefully outlined in each LLC’s operating agreement, including ownership percentages, management control, and distribution rules.

Who Makes Up the Members of an LLC?

These are the following member types permitted for LLCs in most states:

  • State and non-state residents.
  • Citizens and non-citizens of the United States.
  • Corporations.
  • Other LLCs.
  • Trusts.
  • Pension plans.
  • Estates.

S Corporations (S Corps) are more limited in their member requirements as their members must be individuals who are citizens of the United States, and they may not have business entities as members. 

Members of an LLC are listed in the company's operating agreement. 

Member rights and responsibilities will also be outlined in the operating agreement. It should clarify rules for profit sharing, management, and the handling of company losses. 

The members of an LLC may be divided into different classes based on rights and responsibilities. Some classes might have more say in the decisions regarding the company, while others might be more involved in the day-to-day operations. 

Single-member LLCs will have very basic operating agreements as the profits, losses, and responsibilities fall to the one, individual owner. All LLCs must have a minimum of one member in order to be formed. 

Some ways that an LLC might be structured include:

  • A few family members starting a family business.
  • Friends beginning some type of business enterprise.
  • An individual acting as managing member with other members joining under them.
  • A partnership between two members, like a real estate mogul and an accountant.

LLC members can have indirect ownership in the company if there are two LLCs with members under a larger, parent LLC. The members of the subsidiary LLCs have indirect ownership in the parent LLC.

LLC members can also be groups. If a group of people has ownership in an LLC and they have a representative, that individual might be responsible for decisions in the company, but the group as a whole maintains ownership.

Single-Member vs. Multi-Member LLC Ownership

LLCs can have one or multiple members. A single-member LLC (SMLLC) has one owner—either an individual or an entity such as another LLC or corporation—while a multi-member LLC (MMLLC) includes two or more owners sharing control and profits.

Single-Member LLC

  • Treated as a disregarded entity for federal tax purposes unless it elects corporate taxation.
  • The sole owner reports business income and expenses on their personal tax return.
  • Simpler to manage, but it may offer less audit protection since there’s no separation between member decisions and operations.

Multi-Member LLC

  • Functions like a partnership for tax purposes.
  • Requires a Form 1065 informational return and Schedule K-1s for each member.
  • Allows flexibility in profit-sharing and management structures, often appealing to family businesses or co-investors.

Both single-member and multi-member LLCs can include another LLC as a member, though state laws require all members to be identified in the formation documents and operating agreement.

LLC Member Duties

Membership duties should be clearly spelled out in the LLC's articles of organization and operating agreement. These should also include membership rights, voting rules, and powers. If the voting rules are not addressed in the operating agreement, the state will usually have default rules laid out. 

Managers can be members of the LLC, but they can also be individuals who are hired separately. Limited partnerships do not allow members to act as managers in the company. When an LLC member acts as a manager, they do not lose their protection from liabilities. 

Rights and Responsibilities of an LLC Member LLC

When an LLC serves as a member of another LLC, it holds the same rights as any individual member, including:

  • Voting and decision-making rights on major business actions.
  • Entitlement to profit distributions based on ownership percentage.
  • Access to company records and financial statements.

However, the parent LLC’s management (typically its own members or managers) acts on its behalf in the subsidiary LLC. This layer of management can complicate decision-making, so clarity in each operating agreement is crucial.

Operating agreements should define:

  • Voting rights among member LLCs and individuals.
  • Distribution timing and methods for reinvesting profits.
  • Procedures for admitting new members or transferring ownership interests.
  • Conflict resolution mechanisms between parent and subsidiary entities.

A carefully drafted agreement ensures that even if one LLC owns another, both entities operate independently under the law, maintaining liability and asset separation.

LLC Tax Issues

Many business owners choose to use the LLC structure for their business in order to benefit from the pass-through characteristic when it comes to taxes. 

All profits and losses experienced by the company pass through to the LLC members. Therefore, profits are not taxed as company income, but they are only taxed once as the personal income of the members on their federal income taxes. 

Tax Treatment of Member LLC Structures

For tax purposes, how a member LLC is classified depends on its ownership and elections:

  • A single-member LLC owned by another LLC is usually treated as a disregarded entity, meaning its income “passes through” to the parent LLC.
  • A multi-member LLC with at least two members (which could include LLCs, individuals, or corporations) is typically taxed as a partnership, unless it elects C-corporation or S-corporation status using IRS Form 8832 or 2553.

In tiered structures, profits and losses cascade up from the subsidiary to the parent LLC and then to the ultimate owners. Each level must maintain separate records and tax filings to ensure compliance and preserve limited liability status.

If a parent LLC elects S-corporation taxation, however, it cannot own another LLC unless that LLC is disregarded for tax purposes. This makes the S-corp election less flexible for businesses seeking layered LLC ownership.

LLC Liability Protection

If an LLC is subject to a lawsuit or files for bankruptcy, the members of the company are protected from financial and legal responsibility. This protection helps LLCs gain more investors as there is less of a risk than with other company structures. 

Asset Protection and Risk Separation in Member LLCs

One of the main reasons business owners use member LLCs is asset protection. Each LLC in a tiered structure acts as a shield, protecting assets within each entity. For example, if one subsidiary faces a lawsuit or debt claim, the liability generally does not extend to the parent LLC or its other subsidiaries.

To maintain this protection, each LLC must:

  • Maintain separate bank accounts and financial records.
  • Operate under its own name and EIN.
  • Avoid commingling assets between entities.
  • Comply with state filing and reporting requirements.

This separation prevents “piercing the corporate veil,” where courts could hold the members personally liable. A well-structured operating agreement and adherence to corporate formalities strengthen each entity’s legal protection.

LLC Management

LLCs can be either member-managed or manager-managed. 

When the members or owners are responsible for the day-to-day operations for the business, this is a member-managed structure. 

When the member or owners of an LLC hire a third-party to handle the regular business operations, this is a manager-managed structure. 

Typically single-member LLCs are member-managed because the individual owner just takes cares of all daily operations. 

Larger, multi-member LLCs usually hire a manager or appoint a member to act as manager, because there are too many investors to allow all members to be involved in regular decisions and operations. 

Managing Multi-Layer LLC Structures

When one LLC owns another, management can become complex. In a member-managed structure, the parent LLC’s members make management decisions for both their own entity and its subsidiary. In a manager-managed structure, the parent LLC may appoint a manager to act on its behalf.

Best practices for managing layered LLCs include:

  • Creating separate operating agreements for each LLC defining specific management authority.
  • Designating clear lines of responsibility for decision-making, financial reporting, and dispute resolution.
  • Ensuring compliance with state regulations, as some states require disclosure of indirect ownership through parent entities.

Businesses often use this setup to organize multiple projects under one umbrella, such as real estate portfolios or franchise groups. Proper management avoids conflicts and keeps liability walls intact between each LLC.

Frequently Asked Questions

  1. Can an LLC be a member of another LLC in every state?
    Yes. Nearly all U.S. states allow an LLC to be a member of another LLC, though registration and disclosure requirements differ by state.
  2. What’s the benefit of having an LLC own another LLC?
    It provides liability separation, tax flexibility, and simplified ownership transfers between related business entities.
  3. Does a member LLC structure affect taxes?
    Yes. The tax treatment depends on the number of members and whether the LLCs elect to be taxed as partnerships, C-corps, or S-corps.
  4. Who manages an LLC that’s owned by another LLC?
    Typically, the parent LLC’s managers act on its behalf in the subsidiary, unless a separate manager is appointed in the operating agreement.
  5. How can I form an LLC that owns another LLC?
    You’ll need to file Articles of Organization for each LLC, obtain separate EINs, and draft operating agreements that define ownership and management terms. An attorney on UpCounsel can help ensure compliance and optimal structure.

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