Can an LLC Own More Than One Business?

Often, an LLC holding company is referred to as a parent company, while the businesses the holding company owns are called subsidiaries. Holding companies can purchase or create their subsidiaries. A holding company maintains parent company status by owning a controlling interest—at least 51%—in all its subsidiaries.

As the majority owner, a holding company may establish a subsidiary’s financial policies and oversee management decisions but is rarely involved in day-to-day operations.

Advantages of Using a Holding Company

There are numerous benefits to using a holding company rather than operating multiple businesses under a single company or simply owning a number of businesses without a holding company.

• Increased liability protection. This is the primary benefit of using a holding company. Because a parent company is a separate entity from its subsidiaries, as the owner of a holding company, you’re not directly liable for your subsidiaries’ debt or any lawsuits leveled against them.
• Tax efficiency. Subsidiaries file their own taxes, so your holding company only pays taxes on the dividends and/or distributions it receives from subsidiaries. Some holding companies also capitalize on regional tax policies by operating (or having their subsidiaries operate) in jurisdictions with favorable tax rates.
• Lower-interest funding. By providing their subsidiaries with startup funds, holding companies can keep subsidiaries from taking out loans and owing interest. Additionally, an established holding company may be able to get lower-interest loans more easily than a newly-started subsidiary and can then use this money to fund subsidiaries.
• Ability to take more investment risks. Because holding companies are shielded from the liabilities of their subsidiaries, they can invest in innovative or risky projects without fear of taking on their subsidiaries’ debts if their projects fail.

Disadvantages of a Using a Holding Company

Operating a holding company isn’t without drawbacks.

• Separation of assets. Because your holding company and subsidiaries are separate entities, you can’t just take assets from one subsidiary for use by your parent company or another subsidiary. Doing so erodes your limited liability protection. You’ll have to jump through a few legal hoops first, like setting up a loan or negotiating a sale and purchase of assets from one company to another.
• Increased record-keeping and filing costs. You’ll have to maintain internal records along with state filings and fees for your holding company and all subsidiaries, in addition to separate tax filings and payments.
• Possible management challenges. If a holding company doesn’t own 100% of a subsidiary, conflicts about business direction may arise if the holding company and the subsidiary’s minority owners aren’t on the same page.

Holding Company vs Series LLC

Holding companies and series LLCs share a similar structure. Series LLCs are comprised of a master LLC and a string of “child” LLCs, also called cells. In a series LLC, the master LLC and its cells are insulated from the liabilities of other cells. So, if one cell is sued, no other LLC in the series is held responsible for that cell’s legal obligations.

Forming a series LLC can be an alternative to starting a holding company, depending on the location of your business(es). Series LLCs aren’t available in all states—only 22 states, plus the District of Columbia and Puerto Rico offer series LLC registration. Additionally, liability protections for the master LLC and its cell aren’t complete in all jurisdictions. In Minnesota, North Dakota, and Wisconsin, cells can be held accountable for the financial liabilities of other cells and cannot make their own contacts (only the master LLC can make contracts).

How to Set up an LLC Holding Company

Setting up an LLC Holding Company is pretty much the same as starting any other LLC.

You’ll need to:

• File Articles of Organization to register your LLC with the state
• Appoint a registered agent
• Draft an LLC operating agreement
• Get an EIN
• Open a bank account for your LLC
• File your annual report
• Pay your LLC taxes

When authoring your operating agreement, you’ll want to include provisions for situations like acquiring new subsidiaries or details on the role members will play in managing subsidiaries (if applicable).

How to Set up Subsidiaries

As the owner of an LLC holding company, you can purchase or create subsidiaries. Either way, the process isn’t much different from buying or forming a company in general—you’ll just need to list your LLC holding company as the owner on state registration documents. Keep in mind that each subsidiary must be separately registered with the state, have its own EIN and bank account, and pay its own taxes.