Ownership Limitations on LLC’s, S-Corps, and C-Corps
There are many questions that arise when starting a business, but who can own a business is one of the first that needs to be answered.
Who can own a business might seem like a silly question on first asking, but it isn’t. There are limitations and restrictions on if an individual or if another business entity can own a business. I hope this article helps you to understand what restrictions there are on your specific business type explored.
Can a Non-US Citizen Own a US-registered Business?
In general, yes and no. Cleared that right up like mud, huh? A sole proprietorship or partnership can be owned by a non-US citizen only if they have a green card as a permanent resident or if they have a specific type of visa (E-1 or E-2).
A share(s) of stock in a publicly-traded C-Corp may be owned by a non-US citizen unless not allowed for some other reason. (not listed on an exchange they have available to them, embargos, etc.)
S-Corps are available only to US citizens, so that is a “no” to owning shares of that entity.
Here is an article that provides more detailed information on various types of visas and their eligibility for opening a business in the U.S.
Can a Child Own a Business?
First, you have to define child by your state’s definition. While there are no federal restrictions, you need to check state rules on this. Most states require principal owners (decision-makers) of a business to be 18 or older (maybe even 21) since they must be that age to have the mens rea (legal capacity to understand) to sign contacts or purchase certain inventory or equipment. Some LLC’s articles of organization or Corporation’s articles of incorporation may limit ownership to an age minimum.
By these rules, a child might be able to be a non-authority limited partner in a Limited Partnership where an adult is the General Partner or (if US citizen) an owner of stock in an S-Corp if manager-managed or is not one of the member managers (therefore only draws dividends). They could not be a sole proprietor or in a general partnership because of this lack of capacity.
While a child can own stock in a publicly-traded C-Corp, it could only be through a custodial brokerage account that a related adult was managing, not the child.
My best piece of advice is to not have a child as an owner in any capacity of any business structure, outside of maybe a custodial brokerage managed by someone well versed in stocks, bonds, ETFs, mutual funds, etc.
Who Can Own a Business: S-Corp?
An S-Corp has many restrictions on ownership. This form of business tax structure was made to be a blend of corporations with pass-through benefits of sole proprietor/ partnership. According to US law, an S-Corp is limited to 100 shareholders or less. To be a shareholder, one must be a US citizen, deceased US citizen’s estate, or certain types of US-established trusts.
S-Corps cannot be owned by sole proprietorships, partnerships, LLCs, or C-Corps.
But they can be owned by another S-Corp, under certain circumstances. For an S-Corp to own another S-Corp, the owned S-Corp must be a qualified subchapter S subsidiary (QSSS). To be considered a QSSS, the S-Corp must be solely owned by the other S-Corp. In other words, all the stock in the QSSS must be owned exclusively by the other S-Corp.
As a side note- if a qualified LLC elects S-Corp tax status, it is bound by the same restrictions a corporation electing S-Corp tax status is.
Who Can Own a Business: Sole Proprietorship?
Even though this business structure is not registered with the state, the owner must be of legal age under that state’s laws. General citizenship requirements of a green card or proper visa are also required.
Depending on the type of business, state sales tax permit and license requirements may further limit who can own the sole proprietorship.
What Business Can Own Another Business?
See above for the S-Corp restrictions.
It can be tricky for a business to own another as the records of each need to be meticulously kept and kept completely separate. It would be best to hire a well-experienced business attorney who knows the restrictions and can properly set this up rather than get a long confusing blog post article.
Can an Estate own a Business?
Yes and no. I know clear as mud again. An estate is the collective of the assets owned by an individual, usually established at their death. But an estate could also be the assets owned by an individual that has lost the capacity to make their own decisions and a conservatorship has been established by a state court.
In these cases, someone of proper qualification should have been established by the court to act in the person’s stead. Because of the court getting involved, there can be restrictions placed by the courts on the Estate’s abilities to operate the business, even though the Estate owns the business. Again, best to speak to a qualified attorney on this situation.
Can a Trust Own a Business?
Yes, in most cases. Usually, the Trust must meet the same qualifications as the individual who set up the trust and moved their ownership or money used to purchase the business owner. A trust is a separate entity, so it meets age requirements, but one must also look to see if it meets other requirements. (ex-must be a US established trust to own stock in an S-Corp)
Who Can Own a Business?
Who can own a business? As you can see, this can depend a lot on the type of business structure you want to own, the type of business structure that wants to own another business, the age or citizenship of the individual, type of ownership, the status of estates or trusts, and many more things that can vary state to state in requirements.
The best thing you can do is study the laws in the state you choose and consult with an experienced business attorney in that state so that you do not violate any of these requirements.