Q: I currently have an Ohio LLC, but want to create a new LLC and make my current LLC a subsidiary company of my new LLC. How do I do this?
Thank you to John Solano, owner of RomaPress, LLC (@ASRomaPress) for that great question. There isn’t a lot of restriction on who or what kind of entity can own an LLC. This means that if you have an LLC, but want to make it a subsidiary of a parent LLC, you can do that. You’ll need to file paperwork with the state, but overall the process isn’t too difficult. We’ll show you how you can form a parent LLC and make your current LLC a subsidiary of the new LLC.
What is a Subsidiary?
A subsidiary is a company, in this case an LLC, which is fully-owned or partially controlled by another company, called the parent. Subsidiaries are generally independent, both financially and legally, of the parent company, but still under some control from the parent company. Subsidiaries can be owned in whole by an LLC, but they need to at least hold a majority of an LLC’s equity (51%) in order to qualify as a parent LLC. Owning a majority share of an LLC gives the parent the power to appoint managers and direct how the subsidiary LLC will operate.
An example of a parent company with multiple subsidiaries is Darden Restaurants, Inc. They are the parent company of Olive Garden, LongHorn Steakhouse, Cheddar’s Scratch Kitchen, Yard House, The Capital Grille, Seasons 52, Bahama Breeze and Eddie V’s. In short, subsidiaries can help large and small companies branch out into different brands and markets
Benefits of a Subsidiary?
Separate liabilities. The main benefit of a subsidiary is that it creates separation between the parent company and the subsidiary. Keeping LLCs separate can help to insulate the parent company from any financial or legal issues faced by a subsidiary LLC.
Tax benefits. A parent company can reduce its federal tax liability by offsetting profits from one subsidiary with losses in another.
Brand expansion. Expanding a brand or business under a parent company can increase exposure for the parent brand. The subsidiary brand can help establish loyalty and trust with new consumers. Take a look at Disney and its subsidiaries, Marvel, ABC, ESPN, and Lucas Film. All companies in their own right, but under the guise of the parent company, Disney.
Steps to Creating a Subsidiary of Your Original LLC
Creating a subsidiary is as easy as having a parent LLC become a majority member of the LLC it plans to have as a subsidiary. If Sally’s Contracting, LLC wants to also have Sally’s Plumbing, LLC and Sally’s Demolition, LLC under a parent LLC, Sally’s Contracting needs to be a controlling member of each LLC, and recognized as such in the Operating Agreements of each of the subsidiary LLCs.
If you already have an LLC, and want to make it a subsidiary of a not yet formed parent LLC, here’s what you’ll need to do:
Step 1: Because you want to create a parent LLC, the place to start is forming that LLC. Start your new Ohio LLC by submitting Articles of Organization for a Domestic Limited Liability Company to Ohio’s Secretary of State. The filing fee is $99, and you can submit your articles online, by mail, or hand deliver them with an appointment. If you’re in a hurry to get your documents approved, you can pay $100 extra to get expedited 2 day service. Once your articles have been approved, your parent LLC is ready to go.
Step 2: After the parent LLC is formed, you can list it as a member (owner) of your original LLC in the subsidiary’s operating agreement. This will make the original LLC a subsidiary of your new parent LLC. Ohio does not ask, nor require LLCs to include member information in their Articles of Organization. This means that unless you listed member names on your articles, you won’t have to amend anything with the state.
Step 3: Ohio Rev. Code § 1701.801, requires that a document, called a subsidiary agreement, should be drawn up, approved, and signed by all LLC members. This document is internal, but it cements the transfer of ownership of the subsidiary to the parent LLC.
Step 4: You’ll want to write or revisit your LLC’s operating agreement. Your LLC’s operating agreement is a document that includes the the names of the LLC members, the percentage of the LLC they own, the managerial structure, and the responsibilities of each member. It also covers how to add or remove members and dissolve the company.
Check out our attorney-drafted Ohio LLC Operating Agreement.
What if I included member information in my Ohio LLC Articles of Organization?
Although not required by Ohio law, if you did include your LLC member information on your articles before it became a subsidiary, you’ll need to file a Certificate of Amendment or Restatement that lists the parent LLC as the member of the subsidiary LLC. You can file online, by mail, or in person. The certificate costs $50 to file, and can take about 7 business days to be processed.
If you hate waiting around, Ohio offers expedited service:
2 day processing: $150
1 day processing: $250 (only available to walk-in customers)
4 hour processing: $350 (only available to walk-in customers)
Online:
Ohio Business Filings
By Mail:
Ohio Secretary of State
P.O. Box 1329
Columbus, OH 43216
In person:
Client Service Center
22 North Fourth Street
Columbus, Ohio 43215
Learn more about How To File An Amendment For An Ohio LLC.
How do I add more subsidiary LLCs to my parent LLC?
To add more subsidiaries to the parent LLC, you’ll need to form a new LLC each time by filing Articles of Organization with Ohio’s Secretary of State. Remember, Ohio does not require member information to be listed on your LLC formation documents, but you have the option to, and should list the parent LLC as the single member (owner) of the new subsidiary LLC. You’ll also want to do the same thing on your subsidiary’s operating agreement.