How to Create a LLC Subsidiary
The Limited Liability Company (LLC) is an increasingly popular form of business organization because it offers limited liability, pass-through tax treatment and relief from the burden of complying with corporate formalities. Groups of related LLCs can be organized into complex interlocking ownership structures. It is possible for one LLC to own another LLC, forming a parent-subsidiary relationship.
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Instructions
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Select a name for your LLC. The LLC name must include certain language indicating its limited liability status, so that creditors will know not to rely on the personal credit of LLC members. Limited Liability Company or the term "LLC" is acceptable in all states, while in some states the term "limited" is acceptable. Perform a name search on the website of your chosen state's Secretary of State to determine if the name you have selected is already in use.
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Download LLC Articles of Organization from the appropriate department of the state in which you intend to form your LLC (see Resources section). This document is brief and will require you to list basic facts about the LLC such as its name, registered address, members and ownership shares. List the parent company as the LLC member. If you want your subsidiary to have more than one member, make sure that the parent company owns at least 51% of the LLC.
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Complete the Articles of Organization, have them signed by the appropriate parent LLC representative (and any other LLC members), and file them with the Secretary of State of your chosen state of organization together with the required filing fee (usually several hundred dollars).
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Draft an LLC Operating Agreement (if your subsidiary has more than one member). This document acts as a partnership agreement for the LLC. If the subsidiary has more than one member, make sure that the Operating Agreement grants majority voting rights to the parent LLC. Have the agreement signed by each member of the subsidiary. The Operating Agreement need not be filed with state authorities.
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Apply for any business licenses necessary for the subsidiary to operate its business. Some states also require public notification (in a newspaper classifieds, for example) of the formation of a new LLC.
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Tips & Warnings
It is possible for your LLC to be treated as a Subchapter S corporation by the IRS for tax purposes by filing IRS Form 2553. This will relieve members from paying self-employment tax (15.3% of net income) on income that is not distributed to LLC members.
If both parent and subsidiary LLCs elect to be treated as Subchapter C corporations for tax purposes, the income of the subsidiary will be subject to triple taxation--first when the subsidiary receives it, second when it is distributed to the parent, and third when it is distributed to members of the parent. This reality eliminates many of the advantages that might otherwise be obtained by choosing to be taxed as a Subchapter C corporation..
