How Do I Create an LLC Subsidiary?

How Do I Create an LLC Subsidiary?

by Brette Sember, J.D., December 2015

An LLC subsidiary can be an excellent way to organize your business. The subsidiary provides a way for your LLC to expand and grow while still maintaining the same type of organization as the parent company.

What Is a Subsidiary?

An LLC is a special entity recognized under state law that is neither a sole proprietorship or partnership nor corporation. A limited liability company allows you to ‘pass through’ the company’s profits, so that taxes are paid by the LLC member or members. It also protects your assets if there is a lawsuit, with the company being liable instead of the LLC owner or owners.

When an LLC ventures into a new market or new area, it often makes sense to create a subsidiary LLC, so that it can have a clear focus on one market share or product and promote itself separately from the parent company. A subsidiary is a company owned by another company, the parent LLC. The parent LLC owns at least 50% of the voting stock of the subsidiary. The subsidiary enjoys all the same benefits that the parent LLC enjoys in terms of pass through taxation and liability protection.

How to Create a Subsidiary

Now that you know that the answer to ‘can an LLC have subsidiaries’ is yes, you need to find out to set up a subsidiary. Setting up LLC subsidiaries is not hard to do, with just a few steps involved. To create a subsidiary, you will first need to choose a name for it. You must select a name that is not registered by any other company in your state (and it cannot have the exact same name as your parent company). Do a name search on the state secretary of state web site to be sure the name you’ve chosen is available. The name of the subsidiary must include one of the phrases: “limited liability company,” “limited company,” “LLC,” or “LC,” depending on your state requirements.

Complete Articles of Organization

Get a copy of the articles of organization from (from your state secretary of state web site) and complete it for your subsidiary. The form will ask you to name the members of the subsidiary LLC, the address for the business and the person authorized to receive legal documents for the company (called the registered agent).

List your parent company as a member for your subsidiary since they have a stake in the LLC ownership. The parent company might be the only member, or you might have other members, such as individuals or other companies.

When you sign the form, be sure to sign it with your name and role in the parent company, such as “Sally Smith, president of Parent LLC.” Submit your documents to the state with the required fees. Once they are approved, your subsidiary is official.

Finalize the Details

Determine if you need to apply for county or city permits or business licenses to operate your subsidiary or if you can operate under the parent company’s licenses if a license is required.

For your own use, you need to write an operating agreement for the subsidiary that specifies the relationship between the parent company and the subsidiary. This agreement lays out the specifics of the company, such as the management structure and member responsibilities. You do not need to file this with the state, but you will want to have it so there is no question about the ownership of the company or responsibility for debts.

A subsidiary can be a useful addition to your LLC and can allow your company to grow and expand.

LegalZoom can help you form a subsidiary LLC. Talk to a business legal plan attorney to get started. Our legal help plans let you speak with an independent attorney from our network to answer specific questions about your subsidiary LLC, business law in general, and other legal questions for a low monthly fee.