Questions

Can a C Corp be the owner of and fund several LLC's? Can these LLC's have the same paid Directors?

5answers

Yes! But is very tricky. I have a C Corp own two LLCs. You should have separate board of directors in the C Corp that are not owners in the LLCs. Pay through bonuses rather than salaries and aggregate expenses of the LLCs as op. expenses as SBUs of the corp.

The reasons for having a C own LLCs can vary, my reasons were that it allows me to join or create new ventures without having to formalize them with dedicated teams, just cycle my team to different efforts while seperatig expenses, not reporting publicly what is being worked on, and if the product takes off the formation is already there to grow the product into a division or umbrella product of my main company.

LLCs are easy to form, while C corps are not...
One example would be having a conglomerate of investors under a c corp and have advisors and creating an LLc for each new rental construction development project completed. Each is his own, if something goes wrong the LLC covers the C entity- this protecting its investor members.

Best of luck!
Humberto Valle
#unthink


Answered 5 years ago

This is one of those areas that I'd HIGHLY recommend paying for some professional advice (like a CPA or tax attorney) and/or reaching out to your local SBA office. Mis-steps in this area can cost you thousands, even if you have little to know revenue, because of filing requirements and penalties.

Here's the link to the SBA office finder:
https://www.sba.gov/content/find-local-sba-office

Hope that helps!

Ken Clark
Coach, consultant, and therapist to entrepreneurs


Answered 5 years ago

Yes, however you must maintain separate accounting books for each. If you simply use them to shift money around you could create additional liability.

It also depends on what your seeking to accomplish. Typically if the Corp had LLCs they have different partners in each or different sets of projects or products. For example a home builder might structure several LLCs (Home Sales Phase 1, LLC then Home Sales Phase 2, LLC) whereas each LLC will be funded by a different round of fund raising and build 20 homes each in a master community of 100 homes.


Answered 5 years ago

To the first question, yes. This is a common structure for creating subsidiaries, operating units, and joint ventures. If the LLC just has a single member--the C Corp parent--then it will be disregarded for tax purposes, and all LLC revenue and expenses will be reflected on the parent's tax return. If the LLC has multiple members--as in the case of a joint venture--the LLC's revenue and expenses will be allocated as set out in the operating agreement. (Yes, you need an operating agreement. And as with any multi-member LLC, the taxes can get pretty complicated.) As for funding, in each scenario that simply involves moving money from the C Corp to the LLC, either in exchange for membership interests or as a subsequent capital contribution. Money _can_ move back and forth between the entities, just make sure you're keeping records and obeying tax laws.

To the second question, strictly speaking the answer is no, the LLC can't have the same directors because LLCs do not have directors. LLCs have "members," which are the LLC equivalent of stockholders, and "managers," who oversee operations. Managers are the closest thing an LLC has to a directors, and in some cases managers are organized as a board. But managers often have more day-to-day responsibility than corporate directors. Conceptually they are somewhat of a director/officer hybrid. An LLC can also have true officers, though LLC statutes give them little or no attention, so you'll have to define all officer roles and responsibilities in the operating agreement.

The directors of the C Corp parent can absolutely serve as the managers of an LLC subsidiary, whether wholly owned or a joint venture. Keep an eye out for fiduciary conflicts in these cases. They can be waived pretty easily in the LLC operating agreement--which is common in joint ventures--but not so with the corporation. You might also have a C Corp officer serve as the manager of an LLC if the LLC holds a subsidiary in that officer's domain.

A word of warning. Increasingly courts are holding that an LLC structured to mimic a corporation--particularly one with a board of managers that looks like a corporate board of directors--will be subject to corporate-style fiduciary duties, including obligations to members equivalent to the obligations a board owes to its shareholders in the corporate context. This can be a serious problem in many situations, particularly joint ventures where each venturer has an independent, often competing operation.


Answered 4 years ago

Yes, it is okay for a C corporation to hold an interest in several LLC's. The only caveat is if you have an LLC that makes an election to be taxed as an S corporation. LLC's are eligible to make an S election, however, there are limitations on who can be a shareholder in an S corporation. S corporation shareholders are limited to natural persons and certain types of trusts, so a C corporation cannot hold stock in an S corporation. If the LLC is treated as a disregarded entity for federal tax purposes, or the LLC filed an election to be taxed as a C corporation, then there shouldn't be an issue. If the LLC's are wholly owned by the C corporation, the C corporation is the sole Member of the LLC, and can appoint the Directors to be Managers of the LLC. Each LLC should maintain separate books and records and have its own LLC operating agreement.


Answered a year ago

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