Who Can Own a Business? Can One Business Own Another?
Ownership of LLCs, S Corporations, Corporations
Who can own a business? This might seem like a silly question, but it isn't. Some types of individuals and other business entities can own a business, but there are limitations and restrictions on who can own a business.
This article includes restrictions on business ownership in general and for specific business types. Be sure to read the entire article to make sure you understand the ownership requirements for your specific business type.
Can a Non-U.S. Citizen Own a Business in the U.S.?
Yes and no. As discussed in Entrepreneur, if you are not a U.S. citizen, you can own a business in the U.S. but only if you have a green card as a permanent resident or if you have specific types of visa (E-1 or E-2).
Having an ITIN (ID card) isn't enough to qualify you to own a business, because an ITIN is just an identity card.
But, a non-resident alien may not be a shareholder of an S corporation.
USA Corporate Services provides more detailed information on various types of visas and their eligibility for opening a business in the U.S. And, the U.S. Citizenship and Immigration Services (a part of Homeland Security), has an Entrepreneur Visa Guide that can help you get started.
Can a Child Own a Business?
There is no federal restriction on children participating in a business, including an LLC, S corporation, or partnership. But most states require that the principal owners (decision makers) of a business be over age 18.
Use this list from Findlaw to find the legal age of consent for each state. Consent includes signing legal contracts, which is a must-have for business owners.
Before you include a child in a business, take into account the implications of having a minor in a business situation. A contract with a minor is not binding because the child is not legally competent to enter into a contract and can disavow the contract, leading to difficult legal situations. This includes signing for business loans, leases, and contracts with vendors or customers.
A child should not be the sole owner of a business, for the reasons noted above. The concept of "apparent authority" works here. Apparent authority means that someone could reasonably infer that someone (a child, in this case) has the authority to act and bind the business to a contract. This can lead to invalid contracts that are not enforceable in court.
If you want a child to be one of the owners of a business, have someone else do the day-to-day decision making and contract signing.
Children under legal age also cannot be owners of a company by owning shares of stock in their own name.
Who Can Own an S Corporation?
The S corporation has several restrictions on ownership. This business form was created to give business owners an opportunity to benefit from this cross between an LLC and a regular corporation, but that benefit isn't conferred to everyone, and the S corporation is only available to small businesses owned by U.S. citizens.
Like a corporation, an S corporation has shareholders as owners. These shareholders cannot include:
- Non-resident aliens, (as noted above), or
- Partnerships or corporations.
These ownership restrictions also apply to LLC's that elect S corporation status.
The IRS does allow "certain kinds of estates and trusts" and tax-exempt corporations (501(c)(3) non-profits, for example) to be owners of an S corporation.
Who Can Own a Sole Proprietor Business?
A sole proprietorship is a one-owner business that is not registered with a state. The sole proprietor should NOT be a child under the legal age in a state. The general citizenship requirements above (green card or visa) are also required to be a sole proprietor business.
Can a Business Own Another Business?
In many cases, a business can own another business. The most common type of business ownership of another business is a subsidiary company.
An LLC that elects to be taxed as an S corporation must adhere to the same restrictions on ownership as the S corporation, in terms of non-resident aliens and the restrictions on partnerships and corporations owning S corporations.
Can an Estate or a Trust Own a Business?
First, let's define the term "estate." An estate is the ownership of assets or all the money and property owned by an individual person; it's also the net worth of the person, including both what is owned and what is owed. We usually refer to an estate as the assets in a will at the time of someone's death. An estate can be held in a person's name, or it can be held in a partnership or in some other arrangement.
A trust is an entity that manages assets, in a similar way to an estate manager.
An estate typically has an executor or administrator, who manages the assets of the estate. The estate may make investments, including investing in real estate. An estate can invest in a business as a shareholder or partner. In the case of a partnership, the estate would be a limited partner.