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A holding company LLC owns other things. Those things can be shares in a company, membership interests in other LLCs, real estate, or other assets. The company itself may sell nothing. Its role is to sit on top and hold.
The label describes what the LLC does, not a separate legal type. You form it the way you form any LLC, by filing with the state. See what is an LLC for the basics, or compare it with a corporation.
Can an LLC own another LLC?
Usually it can. The IRS LLC page says owners of an LLC are called members. It adds that most states do not restrict ownership, so members may include individuals, corporations, other LLCs and foreign entities.
That is the legal basis for the common layout. You own the holding LLC. The holding LLC owns one or more operating LLCs. Your state's LLC statute is the final word, so read it or ask an attorney.
How the tax rules work
The same IRS page gives the default rules. An LLC with one member is treated as disregarded as separate from its owner for income tax, unless it files Form 8832 and elects corporate treatment. An LLC with at least two members is a partnership by default.
So if you own a holding LLC alone, and it is the only member of an operating LLC, the IRS default treats both as disregarded for income tax. The activity shows up on your own return. That is a default, not a promise. Your facts decide, so ask an accountant.
For employment tax the rule differs. The IRS single member LLC page says a disregarded LLC must use its own name and EIN to report and pay employment taxes. Read what an EIN is and how to get one.
An LLC can also elect S corporation status. The steps are on the Form 2553 page.
What liability protection can you expect?
The SBA business structure guide says LLCs protect you from personal liability in most instances. The point of a holding layout is to keep the risk of one business away from the assets in another. That only works if you treat each company as separate.
Practical habits that help:
- Give each company its own bank account and keep money apart.
- Sign contracts in the right company's name.
- Keep a written operating agreement for each one.
- Keep each company's state filings current, including annual reports.
No page we read promises that a court will respect the separation. That depends on the facts and the state.
Where should you form it?
The holding LLC and the operating LLC do not have to be in the same state. Each LLC pays the filing fee and meets the report rules of the state where it is formed. An LLC doing business in another state may also need to register there. Our state pages list fees from official sources, for example Delaware.
Before you form one
Ask yourself what you gain. A holding LLC adds a second set of filings, a second agreement and often a second fee each year. For one small business it can be extra cost with little benefit. For several businesses or properties it may make sense.
This page is general information, not legal or tax advice. A lawyer and an accountant should check your plan.
Ready to form the company? Start at /start-an-llc/.