How Do I Create an LLC Subsidiary?
Adding a subsidiary to an existing limited liability company can be a good way to expand or grow it.
An LLC subsidiary can be a great way to organize your company. The subsidiary allows your LLC to expand and grow while remaining organized in the same way as the parent company.
What Is a Subsidiary?
An LLC is a state-recognized special entity that is neither a sole proprietorship, a partnership, nor a corporation. A limited liability company allows you to “pass-through” the profits of the company so that the LLC member or members pay taxes on them.
It also protects your assets in the event of a lawsuit, as the company is held liable rather than the LLC owner or owners.
When an LLC enters a new market or area, it often makes sense to form a subsidiary LLC so that it can focus on a single market share or product and promote itself independently of the parent company.
A subsidiary is a company that is owned by the parent LLC. The parent LLC owns at least 50% of the subsidiary’s voting stock. In terms of pass-through taxation and liability protection, the subsidiary LLC enjoys the same advantages as the parent LLC.
How to Form a Subsidiary
The process of forming a subsidiary is very similar to that of forming an LLC. You must first choose a name for your subsidiary before proceeding. You must choose a name that is not already in use by another company in your state (and it cannot have the same name as your parent company).
Check the state secretary of state’s website for availability of the name you have chosen.
Depending on your state’s requirements, the subsidiary’s name must include one of the following phrases: limited liability company, limited company, LLC, or LC.
Complete Organizational Articles
Get a copy of the articles of organization form the website of your state’s secretary of state and fill it out for your subsidiary. The form will request the names of the subsidiary LLC members, the business address, and the person authorized to receive legal documents for the company.
Since they have a share in the LLC ownership, list your parent firm as a member of your subsidiary. You might just have the parent firm as a member, or you might have additional members, such as people or other businesses.
Make sure to sign the document with your name and position within the parent organization, e.g., Sally Smith, president of Parent LLC. Send your LLC paperwork and the necessary fees to the state. When they are accepted, your subsidiary becomes operational.
Finalize the Details
If a license is necessary, determine whether you can operate under the parent companies licenses or if you must apply for county, city, or business licenses in order to operate your subsidiary.
You must create an operating agreement for the subsidiary that details the connection between the parent business and the subsidiary for your personal use.
The specifics of the organization, including the management structure and member responsibilities, are outlined in this agreement. Although you are not required to file this with the state, you should have it so that there is no doubt as to the ownership of the business or its accountability for debts. A subsidiary may be a beneficial addition to your LLC and help your business develop and grow.