How to Organize an LLC Parent Company With Other Trade Names
Small businesses pop up in every state every day. Most begin as sole proprietorships or partnerships and thus offer very little personal protection should legal issues arise. A relatively new form of business, the limited liability company (LLC), offers much of the protection for a corporation while still granting much of the flexibility of a partnership. In addition, because an LLC can claim ownership, a parent LLC can insulate smaller, more specific businesses by making the parent LLC the owner of companies with alternative trade names.
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Instructions
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Search your state's business listings to ensure availability of your LLC name. Usually, this search can be done at the Secretary of State website of the state in which you plan to organize the parent LLC (see Additional Resources for a list of links to Secetray of State websites). Be careful not to use names that already are in existence. Also use caution when using a name that is very similar to an already registered company.
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Register your parent LLC name with your state's Secretary of State (see Addditional Resources). Many states have simplified this process by providing fill-in forms online. Include any required fees.
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Pick one or more DBAs. A DBA is a designation for "Doing Business As" and is the same as picking a trade name for your business. The parent LLC can run multiple businesses under different DBAs (or trade names). During the process of registering a parent LLC, most of the documents give organizers the option of choosing a DBA--or more than one DBA--on the spot.
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Decide what kind of entities your DBAs will be. DBAs can be sole proprietorships, partnerships, real estate trusts, other LLCs or corporations.
A corporation, in a business sense, is a separate and independent entity, much like an individual person. It is therefore taxed like an individual. Corporations pay taxes on money earned. Then, when the corporation pays those earnings out to its shareholders, the same money is taxed again on those individuals' returns.
LLCs give individuals some of the same limited liability as a corporation, but without the dual layers of taxation. With an LLC, profits (or losses) are passed through directly to the individual returns of its organizers without first paying a level of taxes. -
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Decide the percentage of ownership among organizers. Most LLCs are started by more than one person. As a result, the organizers must determine what percentage each owner will hold. Voting rights generally fall equally to each owner on a one-person, one-vote basis, although organizers can opt to vote on company business by percentage ownership.
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Get a Federal Tax ID number. This also is known as an Employer Identification Number. The form needed is an SS-4 and is available through the Internal Revenue Service website (see Additional Resources). This number is especially necessary if the LLC or any of the companies that it will run has employees. For tax purposes, this number will be how the IRS identifies the parent LLC and its subsidiaries or DBAs when it comes to withholding, FICA and other employee-generated taxes.
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Determine what type of entity your LCC will be for tax purposes. An LLC must file a tax return. However, in most cases the company will be what is called a "disregarded" entity, which means that any profits or losses shown on the LLC return will flow onto the owners' 1090 returns via a Schedule K-1 and be recorded as business gains or losses.
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Tips & Warnings
States vary on procedures. Check with the Secretary of State in the state in which you register your LLC for specific requirements in your state. It may be necessary to register with your state's Tax Division as well as the Secretary of State.
