How Do I Create an LLC Under an S Corp.?

By Michelle Kaminsky, J.D.

How Do I Create an LLC Under an S Corp.?

By Michelle Kaminsky, J.D.

If you want to create an LLC, you can do so under an S corp. You may wish to form an LLC subsidiary for several reasons, such as wanting to invest in or operate a separate business, protect the S corp's assets from liability connected to the LLC, or form a joint business venture with other entities in addition to your S corp.

Regardless of your rationale for creating a subsidiary of your S corp, you will follow the same procedure to create the LLC as you did to create the S corp. Just as when you formed the S corp, you must choose an LLC name that is available for business use in the state in which you want to use it. While the process for registering your LLC may vary slightly by state—and you may even wish to form the LLC in a state different from the S corp—here are the basic steps.

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1. File Formation Documents and Pay Fees

Each state outlines the procedure for creating an LLC, which is usually located on your state's secretary of state website. Typically, you must file articles of organization or articles of formation and pay the required filing fees to register an LLC.

Note that although you may not need to file an operating agreement with the state to create your LLC, it is a good idea to have one. An operating agreement is similar to the bylaws of a corporation and details the rules by which LLC members must govern the company. If your S corp will be the only member of the new LLC, this document likely won't be complicated, but you should pay special care if your LLC will have additional members to ensure everyone is on the same page.

2. Appoint a Registered Agent

A registered agent is someone authorized to receive legal filings and other official documents on behalf of the LLC. If your new LLC doesn't have a physical business location in the state of registration, the company must have a separate registered agent to perform this duty.

The registered agent may be a third party who is otherwise unaffiliated with the business. Various companies provide this service for an annual fee.

3. Set Up Taxes and a Bank Account

Just as when opening any other type of LLC, you must obtain an Employer Identification Number (EIN) from the Internal Revenue Service so that you are set up to pay taxes. This number must be separate from your S corp's EIN.

Once you have created your LLC and gotten set up with the IRS, you should strongly consider opening a new bank account for the LLC. Keeping the LLC subsidiary's funds separate from the S corp will protect the S corp's assets from liability related to the LLC.

Setting up an LLC under an S corp can be complicated depending on the circumstances of the two (or more) businesses involved. Consulting experienced legal professionals can simply matters to ensure that the process goes smoothly and keeps the S corp's preferred tax status intact.

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.