A series limited liability company (LLC) offers a low-cost way to create an umbrella LLC over a “series” of separate entities and shield each one from the others’ liabilities. This option is available only in certain states.
At this time, like most other formation providers, we don’t provide series LLC formations, but we hope this article will provide useful information for anyone wanting to learn more about them.
The definition of a series LLC varies by state, but it involves forming a parent LLC and then designating separate series entities under the parent. These entities have unique names, operating agreements, bank accounts, records, members, and managers. While the structure is similar to a holding company, one of the series LLC’s advantages is that, in most states, each individual series doesn’t have to file separate formation documents. Instead, the parent LLC’s operating agreement defines each series.
Most states simply refer to this legal entity as a series LLC, though you may hear the primary LLC referred to as an “umbrella,” “parent,” or “master” LLC.
The primary benefit of a series LLC is that the business owner doesn’t have to pay the filing fees to form several different business entities. You have to file only one Articles of Organization form (or similarly named document) and pay the fee to start your master LLC, which is great for a small business. However, some states now require each series to file a “certificate of designation” or “certificate of registration,” register a name and registered agent, and file annual reports. Any of these documents may be accompanied by filing fees, which reduces the cost savings inherent in this business model.
Because the parent LLC can typically add or terminate a series simply by altering its operating agreement, a series LLC is more flexible than other business entities.
When properly formed and maintained, each series entity is theoretically shielded from the debts of the other series entities. To make this work, each segment in the series must strictly operate as a separate entity. If these entities start to share funds or make joint management decisions, they may be denied liability protection.
Not all states allow this shielding, though, so it’s important that you carefully analyze the rules in your state. Additionally, courts haven’t rigorously tested this liability protection, so think carefully before deciding if a series LLC is the right choice for you.
The tax law governing series LLCs isn’t settled in many states. In some states, only the parent LLC pays taxes. In others, each series may be subject to tax liability. The Internal Revenue Service hasn’t formally addressed series LLCs but has suggested in proposed regulations that each series be treated as an individual entity formed under state law.
The liability of each series during bankruptcy proceedings also isn’t clear. Creditors may be able to go after the parent entity, other segments in the series, or even the owners’ personal assets.
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What are series LLCs used for in your state? For starters, the series LLC is an appealing option for real estate investors who hold each property as a different entity under the master LLC. Investment companies also may use this model and establish each portfolio as a separate series with separate investors.
The number of jurisdictions offering series LLCs is growing. 23 states mention a series LLC business definition in their laws, but not all of them allow true series LLCs (meaning they don’t offer liability protection or they require separate filing).
For instance, California doesn’t allow the formation of series LLCs, but it will recognize series LLCs formed in other states. These foreign series can register and do business in California. However, each segment in the series must pay its own annual franchise tax fee. Check with your state’s Secretary of State or business registration office for specifics.
At this time, ZenBusiness doesn’t do series LLC formations, but we do offer many other services to help you run and grow your series LLC. If you’re ready to form a traditional LLC, we’re here to help with our LLC formation service. We can also provide assistance in keeping your business compliant with our Worry-Free Compliance Service and other helpful business tools. Get started today.
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Disclaimer: The content on this page is for informational purposes only and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.
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