A limited liability company, or LLC, is a common and flexible legal structure that is formed under state law. Like a corporation, the owners of an LLC are not personally liable for the debts of the business. Unlike corporations, however, LLCs do not pay corporate income tax and don't have shareholders or a board of directors. Owners of an LLC have the option to set up the business in any way that suits their purpose, which includes the option to create subsidiary companies under the LLC.
An LLC is an independent entity that exists separate from its owners. Many states allow an LLC the same powers as an individual to do all things necessary to carry on its business and manage its affairs. The LLC may enter into contracts, initiate and defend lawsuits, pay taxes and own property in its own name, including owning another business.
An LLC can conduct any business that falls within the scope of its formation document. The formation document is usually the articles of organization that were filed with the state. Typically, the articles do not limit an LLC's business activities, although the company may be organized for a specific purpose that limits its activities. In most states, LLCs are permitted to amend the articles to change the business purpose. Many companies choose to organize for "any lawful purpose" so as to not limit potential business activities.
LLC owners can decide to structure the business in any way that works for them. This includes entering into new ventures and structuring these businesses as separate divisions within the LLC or as subsidiaries. New business divisions and subsidiaries must comply with the organizing documents or the LLC will need to amend the articles.
An LLC can own more than one business as a subsidiary. A subsidiary company is owned by another business that holds a majority of the shares and may control the activities of the subsidiary. An LLC may create a new business as a subsidiary, or it may purchase an existing company. The LLC, as the parent company, remains a separate legal entity from the subsidiary, and generally, the LLC is not liable for the debts of the subsidiary. In most cases, the subsidiary can be sued or may declare bankruptcy without affecting the parent company.
Elizabeth Rayne earned her J.D. from Penn State University and has been practicing law since 2009, advising clients on issues ranging from employment law to nonprofit management. For two years, she served as a contributing editor for the "Vermont Environmental Monitor."