Holding company LLCs: what they are and how to set one up

As a business grows into several activities or assets, owners often put a holding company above them. Done well, it keeps one business's problems from reaching the others. This guide explains how the structure works, how it is taxed, and how to set it up.

By Awais Jameel, Chartered Accountant. Reviewed by Hamza Fida, Chartered Accountant. Checked against official sources on . 3 minute read.

Short answer

A holding company LLC is an LLC that owns other businesses or assets, such as subsidiary LLCs, property or intellectual property, instead of trading itself. Owners use one to keep each business's risks separate. If the holding LLC owns 100% of a subsidiary LLC, the IRS usually ignores the subsidiary for income tax, so one return can cover the group.

At a glance

What it is
An LLC that owns other companies or assets
Main purpose
Separate the risks of each business
100%-owned subsidiary LLC
Usually disregarded for income tax
Each company needs
Its own bank account, books and contracts
State filings
Every company files its own
Main risk
Mixing money between companies
Holding company LLCs: what they are and how to set one upWhat it is: An LLC that owns other companies or assets; Main purpose: Separate the risks of each business; 100%-owned subsidiary LLC: Usually disregarded for income tax; Each company needs: Its own bank account, books and contracts; State filings: Every company files its own; Main risk: Mixing money between companies.KEY FACTS AT A GLANCEHolding company LLCs: what they are and how to setone upWhat it isAn LLC that owns othercompanies or assetsMain purposeSeparate the risks ofeach business100%-owned subsidiary LLCUsually disregarded forincome taxEach company needsIts own bank account,books and contractsState filingsEvery company files itsownMain riskMixing money betweencompaniesChecked against official sourcesTax BakersHolding company LLCs: what they are and how to set one upWhat it is: An LLC that owns other companies or assets; Main purpose: Separate the risks of each business; 100%-owned subsidiary LLC: Usually disregarded for income tax; Each company needs: Its own bank account, books and contracts; State filings: Every company files its own; Main risk: Mixing money between companies.KEY FACTS AT A GLANCEHolding company LLCs: what theyare and how to set one upWhat it isAn LLC that owns other companies or assetsMain purposeSeparate the risks of each business100%-owned subsidiary LLCUsually disregarded for income taxEach company needsIts own bank account, books and contractsState filingsEvery company files its ownMain riskMixing money between companiesChecked against official sourcesTax Bakers
Key facts at a glance, as set out in this guide.

What is a holding company LLC?

An LLC whose main job is to own things rather than to sell to customers. It might own one or more operating LLCs, a building the businesses rent, or the brand and software they use. The operating companies trade, hire and sign customer contracts. The holding company owns them and collects their profits.

Why do owners use one?

  • Risk separation. A claim against one operating company is generally limited to that company's assets, not the property or the other businesses.
  • Protecting valuable assets. Property or intellectual property held by the holding company and rented or licensed to the operating company is not exposed to the operating company's creditors in the same way.
  • One point of ownership. Bringing in a partner, selling a business or passing ownership on can be done at one level.
  • Cleaner exits. One operating company can be sold or closed without disturbing the others.

How is the group taxed?

StructureUsual federal tax treatment
Single-owner holding LLC owning 100% of subsidiary LLCsAll disregarded: the owner reports everything on their own return, unless an election is made
Multi-member holding LLC owning 100% of subsidiary LLCsOne partnership return, Form 1065, for the holding LLC; the subsidiaries are disregarded
Subsidiary with outside ownersThe subsidiary is a partnership and files its own Form 1065
Subsidiary elected as an S corporationNot allowed if the owner is a partnership LLC; an S corporation cannot have a partnership as a shareholder

A disregarded subsidiary is still a separate company for liability and state law, and usually needs its own EIN for its bank account and any payroll. If the owner is not a US person, each disregarded LLC in the group may have its own Form 5472 filing. See how LLCs are taxed and Form 5472.

How do you set one up?

  1. Form the holding LLC

    Usually in your home state. See which state to form your LLC in.

  2. Form or transfer the operating LLCs

    New subsidiaries name the holding LLC as their member. Existing LLCs are transferred by assigning your membership interest to the holding LLC.

  3. Sign operating agreements for each

    The holding LLC signs as the member of each subsidiary.

  4. Get EINs and bank accounts

    One for each company that has its own activity.

  5. Put intercompany agreements in place

    Leases, licenses or management fees at fair rates, in writing.

What weakens the protection?

  • Paying one company's bills from another company's account.
  • One bank account for the whole group.
  • No written agreements for rent, licenses or loans between companies.
  • Contracts signed in the wrong company's name.
  • Leaving a subsidiary without enough money to meet its own obligations.

Courts can disregard the separation between companies that are run as one, which is what the structure was meant to prevent. See business account vs personal account.

Is it worth the extra cost?

Each company has its own state fees, registered agent and bookkeeping. For one small business with no valuable assets, a holding company usually adds cost without much benefit. It becomes worthwhile once there are several businesses, property or intellectual property worth protecting, or plans to bring in partners. See how much an LLC costs.

Building a group of companies?

We design the structure, form the holding and subsidiary LLCs, and set up the books, bank accounts and filings for each.

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Questions people ask

What is a holding company LLC?

An LLC that owns other companies or assets, such as subsidiary LLCs, property or intellectual property, rather than trading itself.

How is a holding company LLC taxed?

It depends on its owners. A single-owner holding LLC and its 100%-owned subsidiary LLCs are usually all disregarded and reported on the owner's return.

Does each subsidiary LLC need its own EIN?

Usually yes, for its bank account, payroll and any filings it makes in its own name.

Can a holding company LLC own an S corporation?

Not if the holding LLC is taxed as a partnership. A single-owner holding LLC that is disregarded can generally hold S corporation shares for its owner.

Sources

Every fee, date and rule on this page was taken from these official and primary sources.

  1. IRS: Single member limited liability companies
  2. IRS: Instructions for Form 1065 (2025)
  3. IRS: Instructions for Form 5472 (Rev. December 2024)
  4. Internal Revenue Code section 1361: S corporation shareholder rules

Rules and fees change. If you are reading this long after October 1, 2026, confirm the figures with the source before you rely on them.

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This guide is general information. It is not tax or legal advice for your situation.