How Do I Create an LLC Subsidiary?

By Larissa Bodniowycz, J.D.

How Do I Create an LLC Subsidiary?

By Larissa Bodniowycz, J.D.

Forming a subsidiary limited liability company (LLC) might sound like a complicated and expensive undertaking, but that's not necessarily the case. Forming a subsidiary LLC can be quick, easy, and low-cost, if you follow these simple steps.

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1. Decide whether you truly need a subsidiary.

Understand what a subsidiary is and whether one is necessary is an important but often overlooked step. A subsidiary is a company wholly owned by another company, with the latter being referred to as the "parent company." A subsidiary helps protect different sections of a business from being liable for the actions of others, and it does so with less administrative headache than creating a completely separate LLC.

For example, real estate investment ventures often form subsidiary LLCs for each property they own, with all of them being owned by a single parent LLC. If one property is hit with an adverse judgment in a lawsuit or owes debts it cannot pay, this parent-subsidiary structure helps prevent the parent or other subsidiaries from having to pay on behalf of the property with the issue.

2. Name the subsidiary.

Once you decide to form a subsidiary, you must choose a name for it. All states require that the name include “LLC," “limited liability company," or a similar indication that the company is an LLC. Subsidiaries often choose a name that is similar to the parent company's name, but that is not a requirement.

The chosen name for the LLC subsidiary should be researched to ensure that it is not already in use. Search your state's LLC registrations, the U.S. Patent & Trademark Office database, and the internet for pre-existing uses of the name that might prevent you from using it.

3. Form the subsidiary.

The next step is to form the actual subsidiary through the state agency that regulates businesses—usually the Secretary of State—in the state where the subsidiary intends to operate. The process is the same as the process you used to form your parent LLC.

Access and fill out the Articles of Organization form for your state. List the parent company as the sole member, or owner, of the new subsidiary LLC. Then submit the Articles of Organization and the required registration fee. Some states allow you to file your articles and fee electronically.

4. Draft and amend operating agreements.

Drafting an operating agreement isn't a legally required step in the formation of a subsidiary LLC, but it's a good way to prevent future confusion or legal troubles. As with all LLCs, the operating agreement should lay out how the LLC operates: who owns the LLC (the parent company), how and by whom the LLC is managed, and steps for dissolution, among other topics.

In addition to the usual provisions, the operating agreement for the subsidiary should also set forth its relationship to the parent company. The operating agreement for the parent LLC should also be reviewed and revised to incorporate provisions regarding its relationship to the subsidiary corporation.

Operating agreements are kept with company records, as the state does not require them.

While it may take a little paperwork, structuring your company with subsidiary and parent LLCs can help provide additional protection for your company's assets.

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.