Can an LLC Own a Corporation?

Can an LLC own a corporation? Yes, if it is a C Corporation. If a corporation has chosen to file with the IRS to be taxed as an S Corporation, an LLC (Limited Liability Company) may not have ownership over it as S Corporations may only be owned by natural persons. 

C Corporations (C Corps) and S Corporations (S Corps) are the two type of corporations and are quite similar in every way except when it comes to taxes. 

S Corps are identified the same way as LLCs are with the IRS as pass-through tax entities, meaning that as small, independently-owned businesses their profits "pass through" the business and go to an individual, so they are taxed at individual rates. C Corps are viewed differently and pay a specific, corporate tax. 

Any corporation, when it is first formed, is automatically a C Corp. To become an S Corp, the owners must file Form 2553 with the IRS to become an S Corp and therefore be taxed differently.

Because S Corps are pass-through entities, there are rules regarding their ownership. Only individual people are allowed to own stock in an S Corp, but both people and business entities may be stockholders in a C Corp. So, LLCs can own a C Corp, but not an S Corp. 

If an LLC owns shares in a C Corp, the C Corp will be taxed as a corporation, but any dividends passed to the LLC and its members will then be subject to individual taxes on the members' personal tax returns. 

When an LLC wants to acquire another business, like a corporation, the owner might want to consider taking on the corporation's assets and not the entity itself to avoid changes in taxation. This is a complex decision, so it's a good idea to get legal help when figuring out the right move for your company. 

The LLC owner will want to be careful not to end up with different classification under the IRS through an acquisition. A business lawyer will help make sure any unwanted complications are avoided. 

An LLC Owning a C Corporation

C Corps can be owned by LLCs, sometimes with all of the stock held by the LLC or just one or two shares. It wouldn't be very beneficial for an LLC to own an S Corp with the pass-through nature of the company, because profits will pass through the S Corp and then again through the LLC.   

The United States has only recently gained an interest in LLCs. They've been popular in Europe and South America for a while, but only saw major recognition in the United States in 1977 when the state of Wyoming decided to regulate the legalization of LLCs. They didn't start showing up much in other states until 1988.

LLCs were first required to be taxed as partnerships by the IRS, which meant that all LLCs needed more than one "member" or owner. The American Bar Association wanted to see LLCs recognized as their own entity, so they pressured states to legalize LLCs and allow for single-member entities. In the 1990s, the IRS allowed for these types of LLCs and provided four different choices for taxation status. 

LLC options for status for federal tax purposes are:

  • C Corporations.
  • S Corporations.
  • Partnerships.
  • Disregarded Entities.

The type that probably comes to mind when people think of major companies are C corporations. These are the standard type of company that can be publicly traded with stock holdings available for the general public.

S Corporations are less well-known as their shareholders handle stock differently and are taxed individually on any profits gained from their shares.

The profits of a C Corp are taxed by the IRS according to corporation regulations, and shareholding LLCs are also taxed on any profits per their specific regulations, so the profits are doubly taxed. The IRS taxes the C Corp profits and then the LLC dividends.

When an LLC owns a C Corp, they benefit from ease in changes of ownership, sales of stock and the profits from those sales, and continuing legal standing. Owners of the LLC can enjoy more freedom to enjoy corporate events and not be concerned with C Corp issues, as the LLC operates as a separate entity from the C Corp.

If you need help with an LLC owning a corporation, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.