Owners of companies with multiple departments and diverse investments may benefit from setting up a parent-subsidiary structure with multiple LLCs. By spreading a company's assets across different business entities, the company reduces the risks of losing its assets in the event of a large claim. This is because claims are limited to the assets the individual LLC possesses; the assets of parent or subsidiary LLCs are, in effect, shielded from the judgment. Forming a subsidiary LLC is as straightforward as forming the original LLC.
Select a name for your subsidiary LLC that has not been registered by any other company doing business in your state. As with your parent company, your subsidiary must include the words "limited liability company" or "limited company," or the abbreviation "LLC" or "LC." Your subsidiary may be similarly named to your parent company, but it does not have to be.
Read More: Is the Parent Company Liable When an LLC Is Sued?
Obtain a blank articles of organization form. This form is usually available online on the secretary of state's website in the state where you're forming the subsidiary.
Fill out the articles of organization in compliance with your state's laws. When you come to the section to identify the members of your LLC, select your parent LLC as a member. The parent LLC may either be the sole member, or may take an ownership interest in the subsidiary along with other LLCs or individuals.
Sign the articles of organization as a representative of the parent LLC. In other words, do not sign as "John Doe," but rather as "John Doe, President of Parent LLC."
Draft an operating agreement that outlines the relationship between the parent LLC and the subsidiary LLC. While this document is not necessary for formation, it will help in the future in the event any disputes arise as to the ownership of the company or the liability for debts.
Submit your articles of organization and any other required formation documents to your state's secretary of state. Upon approval, the new LLC will automatically be a subsidiary of the parent LLC.
Because subsidiary LLCs are business assets of the parent LLC, the subsidiary company's assets may be vulnerable to debts of the parent company.