What is a Series LLC? Read on to learn everything you need to know.
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A series limited liability company (LLC) offers a low-cost way to create an umbrella LLC over multiple separate entities and shield each separate entity from the other’s liabilities. This option is available only in certain states though.
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 separately file formation documents with the state. Instead, the umbrella 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 Certificate of Formation (referred to as Articles of Organization in some states) 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 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 shielded from the debts of the other series entities. To make this work, each series must strictly operate as a separate entity. If series 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 most 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 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 or other series.
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 series 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. Over twenty 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 do require separate filing).
Currently, the states that allow a series LLC are Delaware, Illinois, Iowa, Nevada, Oklahoma, Tennessee, Texas, Utah.
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.
Check with your state’s Secretary of State or business registration office for specifics.
A series LLC is a special type of business entity that allows a number of LLCs to be operated under a single parent LLC. The rules for series LLCs can vary significantly from state-to-state, and not all states permit them.
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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.