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Dear John, An LLC can be owned in whole or in part by another LLC, so it
is possible to issue membership interest in the parent LLC to the second LLC.
However, it creates a very unusual structure.
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The nice thing about LLCs is the pass-through taxation they provide; in
the case of a subsidiary LLC that is wholly owned by a parent LLC, all of
the net taxable income of the subsidiary LLC flows up to the parent LLC and,
in turn, flows up to the owner(s) of the parent LLC for tax purposes. This
makes tax preparation slightly less cumbersome because, rather than having
to prepare tax schedules for each separate LLC, only one is prepared.
But what would happen in the scenario you propose? Net taxable income of
the subsidiary LLC would flow through to the parent LLC; but, from there,
the income would flow right back to the subsidiary LLC--since it would be a
member of the first, "parent" LLC--and whomever else is a member of the
first LLC. It seems awfully complicated and it's unclear what the motivation
would be for setting it up this way.
If you are concerned about liability protection, I would recommend that
you consult an attorney to help you devise an asset protection strategy and
properly structure ownership of your LLCs.
Chrissie Mould
About the PowerHomeBiz.com Guide:
 Chrissie
Mould has over a decade of experience in business administration and
startup business consulting. She has helped launch companies in multiple
industries and has managed corporate administration and governance for
public and private companies. She is an incorporation specialist with
MyNewVenture.com LLC. The company provides low-cost incorporation services
to entrepreneurs and small businesses. Visit
www.MyNewVenture.com to form
a corporation or LLC.
The opinions expressed in this column are those of the
author, not of PowerHomeBiz.com. Users should not treat the Guide's response as
legal, accounting, or professional advice as all answers are intended to be
general in nature. Such advice can only be properly given by qualified
professionals who are fully aware of a user's specific geographical areas or
circumstances, such as an attorney or accountant.
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