In this article, we’re answering “can an S corp own an LLC?”
In short, the answer is “yes” – but there are a number of important nuances that we’ll cover in this article.
Feel free to use the table of contents to jump ahead to the sections most relevant to you.
Table of Contents
- Can an S Corp Own an LLC?
- How Can an S Corporation Own an LLC?
- Frequently Asked Questions
- Ready to Explore Your Options?
Can an S Corp Own an LLC?
Yes, an S corp can own an LLC by being registered as a member (owner) of the LLC with the respective state of registration. In fact, limited liability companies (LLCs) can be owned by both natural persons or legal entities, which includes ownership by an S corporation.
However, the opposite is not true. S corporations cannot be owned by LLCs (or any other business entities). Instead, an S corp can only be owned by a natural US citizen and resident.
How Can an S Corporation Own an LLC?
An S corporation can own an LLC by following the same process that a natural person would in order to file and register an LLC in a state of their choosing. To do so, the S corporation must engage a local registered agent and provide the necessary supporting documents, including information on the member of the LLC being formed. In this case, the member of the LLC being formed would be the S corp.
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Frequently Asked Questions
Below are three of the most common questions that we receive from people asking “can an S Corp own an LLC?”. If you have further questions you would like answered, don’t hesitate to get in touch with us directly.
Can an S Corporation Own Another Company?
Yes, an S Corporation can own another company, including a US LLC. The process for an S corp to own another company is similar to a natural person owning a company. But, instead of registering a company with a natural person as the respective owner or member, an S corporation would be used in their place.
Why Have an S Corp Own an LLC?
One reason why business owners have an S corp own an LLC is for tax optimization. This may occur because non-dividend distributions from an S corp to shareholders are typically considered tax-free, as long as they do not exceed the shareholder’s stock basis. On the other hand, income from a single-member LLC that does not elect to be treated as a corporation is taxable on the owner’s (member’s) personal income tax level.
Is an LLC an Eligible S Corporation Shareholder?
No, an LLC is not an eligible S corporation shareholder. In fact, only US citizens and residents are eligible shareholders of an S corporation. In contrast, US citizens and residents, foreigners and non-residents, as well as other business entities (including S corps), are eligible owners (members) of an LLC.
Is It Better for an LLC to be Taxed as an S Corp?
Choosing the best way for an LLC to be taxed, ultimately depends on the member of the LLC. For instance, foreign non-resident members of single-member US LLCs who reside in low-tax or no-tax jurisdictions may find that their business income is close to zero as long as their LLC does not have any Effectively Connected Income (ECI) in the United States.
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