Who Can Own Your LLC—and What It Can Own

A practical guide to IRS limitations on you and your LLC.

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Starting an LLC is a big move. You want to protect yourself, stay flexible, and maybe save some money on taxes. But here's the part many new owners overlook: who (or what) can own your LLC—and what your LLC can own—matters more than you think.

Get that wrong, and the IRS or your state could change how you’re taxed, charge penalties, or worse. Get it right, and your LLC becomes a powerful tool to build, protect, and grow your business.

This article gives you the essential breakdown, without legal jargon. We’ll cover what you need to know whether you’ve kept your LLC simple or elected to have it taxed like an S corporation. If you're just starting out, this is worth keeping handy.

If You Didn't Elect S Corporation Tax Status

Who Can Own the LLC?

In this setup, the IRS gives you a lot of room. Unless your state says otherwise, your LLC can be owned by:

  • You (as an individual or as trustee of your revocable trust) See our prior article: How To Assign Your LLC Ownership Interest To Your Revocable Trust, here.

  • Multiple individuals

  • Other LLCs

  • Corporations

  • Partnerships

  • Trusts

  • Foreign entities and non-U.S. persons

Your LLC can have one member or several. The IRS treats them differently, so here’s the quick breakdown:

  • Single-Member LLC (SMLLC): The IRS ignores the LLC for income tax purposes. You report profits and losses on your own return, like a sole proprietor. However, for payroll taxes and special excise taxes, the LLC is treated as separate and needs its own EIN.

  • Multi-Member LLC: This is treated as a partnership. The LLC files its own tax return (Form 1065) and sends each owner a Schedule K-1. Owners then report their share of profits or losses individually. These profits are usually subject to self-employment tax.

  • Spouses as Co-Owners: If you live in a community property state, you can treat your LLC as a single-member entity or a partnership. In other states, it defaults to a partnership, and you can’t elect to be treated as a joint venture.

Want to change how you’re taxed? You can file a form (Form 8832) to elect corporate taxation. But be careful—you can’t change that classification again for five years unless there’s a significant change in ownership or business activity that qualifies under IRS exceptions.

What Can the LLC Own?

This is where the LLC shines. It can own just about anything:

  • Real estate, equipment, and vehicles

  • Intellectual property (trademarks, copyrights)

  • Investments: crypto, stocks, bonds, mutual funds

  • Ownership in other LLCs or partnerships

  • C corporation stock

One big caution: S corporation stock. Your LLC generally can’t own it. The one narrow exception is if the LLC is a disregarded single-member LLC and its sole owner is an eligible S corp shareholder—because the IRS looks through the LLC and treats the individual as the shareholder. If the IRS sees an ineligible owner, the S corp status could be terminated.

Other Considerations

  • Employment Taxes: If your LLC has employees or certain excise taxes, it needs its own EIN.

  • Foreign Owners: They’re allowed for regular LLCs, but not for those electing S corp status. Additional tax and reporting rules apply.

  • Regulated Businesses: Insurance and banking companies face special state and federal restrictions.

  • Ownership Changes: If a multi-member LLC becomes a single-member LLC (say, one owner buys out the rest), the IRS may treat it as a sale and recognize gain or loss.

If You Elected S Corporation Tax Status

Now we’re in stricter territory. Electing S corp status can help reduce self-employment taxes, but it also limits who can own your LLC and what it can own.

Who Can Own It?

Only certain types of owners are allowed:

  • Individuals who are U.S. citizens or residents

  • Certain trusts and estates

  • 501(c)(3) nonprofits

Who can’t own it?

  • Corporations

  • Partnerships

  • Other LLCs

  • Non-resident aliens

If your LLC has just one eligible owner, you can still elect S corp status. You file Form 2553 and get taxed like an S corp, while legally staying an LLC. The IRS will treat your income like that of an S corporation, not a sole proprietorship.

If you have multiple eligible members, they all must qualify. You’ll file as an S corp and send out K-1s to each owner at year-end.

Watch out for timing: Form 2553 needs to be filed within 2 months and 15 days after forming the LLC or starting your tax year. Miss it? The IRS allows late elections in some cases if you meet certain rules.

What Can the LLC Own?

In most cases, the same list as before applies:

  • Real estate, equipment, and IP

  • Other LLCs (especially if they’re single-member and disregarded)

  • C corporation stock

What about S corporation stock? A regular S-corp LLC can’t own it directly. Also, only corporations can be treated as Qualified Subchapter S Subsidiaries (QSubs). However, an S corp may use a disregarded LLC to hold the stock of a QSub if structured properly. This is a nuanced move—best structured with a CPA or tax attorney.

Restrictions to Remember

  • 100 Shareholder Limit: Your LLC can’t have more than 100 owners.

  • One Class of Stock: All members must have the same rights to distributions and voting. No preferred shares.

  • Reasonable Salary Requirement: As an owner-employee, you must pay yourself a fair salary that’s subject to payroll taxes. Remaining profits may be treated as distributions, which often aren’t subject to self-employment tax.

  • Taxable Event Alert: If your LLC was taxed as a partnership and you switch to S corp status, the IRS might treat it as contributing assets to a corporation. If the LLC’s liabilities exceed the tax basis of its assets, this could trigger taxable gain. Again, get with a CPA or tax attorney beforehand if this is your plan.

What This Means for You

  • If You’re Just Starting: A single-member LLC taxed as a sole proprietorship is simple and flexible. It’s great for getting started without too much paperwork.

  • If You Have Multiple Owners: The default partnership treatment offers pass-through tax simplicity, but it also means paying self-employment tax on your share.

  • If You’re Growing Fast: Electing S corp status can reduce taxes, but the rules are strict. Make sure your ownership qualifies, and talk to a tax pro before you file.

  • If You Want to Expand: Your LLC can own almost anything—property, other businesses, intellectual property. But be careful when it comes to S corp stock.

Final Word

An LLC is like a Swiss Army knife for your business. But it only works well if you know how to use it. Understanding who can own it—and what it can own—helps you avoid expensive mistakes and build a business that lasts.

Even if you’re not ready to make big tax moves now, save this guide. You’ll be glad you have it when the time comes to grow.

Have an interesting business question and need a free bit of advice? Send your question to [email protected]. No confidential info, please!