A subsidiary is a company where all or a majority of its stock is owned by another company. An incorporated subsidiary is formed according to the same procedure as any unrelated corporation. The distinction between a subsidiary and an unrelated corporation is not in the process of incorporation but in how the initial authorised shares of stock are owned. A subsidiary will have all or a majority of its stock owned by a parent company, and this provision will likely be detailed in the articles of incorporation, while an unrelated corporation would authorise shares of stock that can later be bought or sold by anyone in position to do so.
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Things you need
- Business name
- Filing fees
Choose a state in which to incorporate the subsidiary. A corporation is formed under state law, and any new corporation must register with the state where it wants to maintain its official presence. Each state has its own corporation law and a procedure for filing incorporation paperwork with the secretary of state. Visit the “Business Incorporation” page of the U.S. Small Business Administration’s Business.gov website and look for the “State Business Entity Registration” chart. The links in this chart will lead you to the correct state website for processing incorporation papers.
Name your subsidiary and conduct a name search to verify availability. Every state requires that a new corporation operate under a unique business name within its borders to prevent confusion and to protect the interests of existing businesses. The state website that provides the information on incorporation will also have a business database where a name search can be conducted. Once you have verified the availability of your business name, you can reserve the name, if necessary, or proceed with the preparation and filing of articles of incorporation.
Prepare and file articles of incorporation (sometimes known as certificate of incorporation or charter). All states provide a downloadable PDF template of the articles of incorporation that can be filled out with basic information. Some states will allow this form to be filled out online and submitted electronically. Other states will require that you print the form and mail, fax or deliver the form in person to the correct office. In either case, the state form will request the minimum information required by law for articles to be accepted by the state. This information will usually consist of the business name, the name and address of a registered agent, the number of initial authorised shares of stock, and the name and address of the person filing the paperwork. The form is provided as a convenience, but if the business has special circumstances it wants to address, it can draft its own articles or expand upon the state form. A parent company incorporating a subsidiary should include in the articles provisions that affirm the parent as the sole shareholder, that the parent owns all of the subsidiary’s voting stock and prohibits amendment of the articles without the approval of the parent as the sole shareholder.
Tips and warnings
- States have standardised the process of incorporation so that almost anyone can file articles of incorporation by visiting the website of the secretary of state. However, the form provided by the state contains only basic provisions that satisfy minimum legal requirements. Forming a subsidiary correctly requires the use of some provisions that are not necessarily provided as part of the basic form. While these provisions are not ordinarily difficult to research and adopt, consider consulting a lawyer, accountant or business expert to ensure that the articles of incorporation of your subsidiary correctly protect the interests of the parent company.
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