How to Create a LLC Parent Company and Subsidiary Structure


How to Create a LLC Parent Company and Subsidiary Structure

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Becoming a parent brings a lot of joy…and a lot of uncertainty. The same can often be said for owners of parent LLCs.

An LLC parent company operates as an umbrella company, under which other smaller companies or subsidiaries are owned and managed. If you have an interest in branching out to other businesses, a parent LLC might be the right choice for you.

Below we outline how to convert your current LLC to a parent LLC on your own. But buckle up because parenthood (even in business) is a wild ride.

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1. Acquire or Create Subsidiaries

The first step to converting your LLC into a parent LLC is to acquire or create subsidiaries, as having subsidiaries is what qualifies an LLC as a "parent." LLC subsidiaries are unique legal entities that are majority owned by your LLC.

Keep in mind that with LLCs, you’ll benefit from the same pass-through taxation as your original LLC. If your subsidiaries are C Corps, you’ll need to file taxes as a C Corps and will be subject to corporate taxation.

Parent-Subsidiary LLC Structure

Your LLC needs to be structured to hold a majority of equity in all subsidiaries in order to be considered a "parent." So, you can create subsidiaries from scratch, fully owned by your LLC, or buy into an existing business with either a full acquisition or a majority purchase. Subsidiaries can be LLCs or C Corps, but never S Corps.

2. File Articles of Organization

Once your subsidiaries are lined up, file Articles of Organization. You’re most likely to do this in the same state as your original LLC, but if you’re planning on doing most of your business in another state, you can file elsewhere.

3. Secure EINs for All Subsidiaries

You already have an EIN for your primary LLC, so why do you need another? In order for subsidiaries to be seen as separate legal entities under the umbrella of your parent LLC, they will each need their own Tax ID Number.

You can file for an EIN on your own, but if you want a quick and easy turnaround (within one business day), Incfile’s EIN service can take care of the paperwork and filing for you.

4. Create DBAs for Subsidiaries

Your subsidiaries should each have a unique name that’s available in the state in which you’re filing, which you’ll register when you form the entity.

But since you’ll be conducting the business of managing your subsidiaries in your parent LLC’s home state, you’ll need to file a DBA for each one. You may also need to file a DBA for your parent LLC in any other states in which your subsidiaries operate if you plan on using your parent LLCs name to do business there.

5. File Articles of Amendment

In some states, you may be required to file Articles of Amendment, particularly if you acquired an existing company as one of your parent LLCs subsidiaries.

Each state requirement is different, so before you move forward, be sure to check with the Secretary of State in each location you plan to do business. You’ll need to file an amendment if you change the name of either your parent LLC or one of its subsidiaries or if you need to add or change a Registered Agent.

You've Officially Created a Parent LLC!

Once you've followed these steps, your original LLC will officially be a parent LLC. Keep in mind that subsidiaries may or may not be owned in whole by your original LLC, but you must hold a majority share of the subsidiary’s equity to qualify as a parent LLC.

This gives your parent LLC the ability to appoint the managers of all your subsidiaries and gives you ownership control.

Can I Change My LLC to a Parent LLC?

As long as you own more than 50% equity in your subsidiaries, you can change your LLC into a parent LLC. But to convert it, you’ll need to form legal business entities for each of your subsidiaries under the original LLC.

And while you can certainly create a parent LLC on your own, you may need some help with some of the steps along the way. That’s where Incfile comes in to help guide you on your parenthood journey.

Pros and Cons of Parent LLCs

The upside of owning a parent LLC and its subsidiaries is that, just like your current LLC, they are all separated from your personal assets and keep you protected in the event of lawsuits and legal action. There may also be tax benefits, depending on how you form your subsidiaries.

The downside: forming multiple subsidiaries can be time-consuming and costly and comes with some extra legwork, like more paperwork, separate bank accounts for each entity, and managing the rules and regulations of each state you do business in.

Other options, like a series LLC or a holding company, may also be good options to suit your needs.

So, can an LLC be a parent company? Yes! In fact, you can convert your LLC to a parent LLC on your own. But just like parenting human offspring, it takes a village. At Incfile, we’re here to help DIYers like you get started on the right foot. Check out our free formation services to learn how we can help you get started.

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