LLC Ownership of an S Corporation
Can an LLC own interests in an S corporation? IRS has strict requirements for S corporations that can complicate an ownership relationship between an S corporation and an LLC. Whether or not an LLC can have interests in an S Corporation is debatable and different from case to case.
Multi-member LLCs. All LLCs with more than one member are taxed as partnerships unless they have required to be taxed as corporations. Since neither partnerships, nor corporations are allowed to own an S corporation, no LLC with more than one member can either.
Single-member LLCs. If you are the sole member of an LLC, the income is passed to you and taxed in your hands. If you can or cannot hold ownership interest in an S corporation, it depends in this case on how you have elected to be taxed as an LLC:
- If you are the sole owner of an LLC, but you have expressed the choice of being taxed as a corporation or as a partnership, you cannot have an ownership interest in an S corporation.
- If you are the sole member of an LLC and you are a U.S. citizen or permanent resident, therefore eligible to own an S corporation, your LLC can have ownership interest in an S corporation.