A series LLC (Limited Liability Company) is a unique type of LLC structure that allows for the creation of separate “series” within a single LLC.
Each series sitting under the master LLC operates as a separate entity with its own assets, liabilities, members, and business activities.
In other words, a series LLC is like a parent company with multiple subsidiaries, but instead of creating separate LLCs for each subsidiary, the series LLC creates individual series within the parent LLC.
This structure offers several benefits, including:
- Liability protection: The liability of each series is limited to the assets of that series, which means that if one series is sued, the assets of the other series are protected as they are separate entities. And because you are using an LLC structure, your personal property is protected.
- Cost Savings: Instead of creating multiple LLCs, a series LLC allows you to create multiple series under a single LLC, which can save on legal and administrative costs. Having to form a traditional LLC for each business unit (or property if you are a real estate investor) can get costly.
- Flexibility: Each series within the series LLC can have its own management structure, membership interests, and business activities.
See here for some info on the Series LLC structure vs a traditional LLC.
It’s important to note that not all states recognize the series LLC structure, and those that do have different requirements and restrictions. If you are considering a series LLC, it’s important to consult with a legal professional to determine if it is the best choice for your business.
States that Allow A Series LLC (Full List of all 18)
The state of Delaware pioneered the series LLC concept. Now, all up 18 states now offer the series LLC structure as an option.
- Alabama
- Arkansas
- Delaware
- District of Columbia
- Illinois
- Indiana
- Iowa
- Kansas
- Missouri
- Montana
- Nebraska
- Nevada
- North Dakota
- Oklahoma
- Puerto Rico
- Tennessee
- Texas
- Utah
- Virginia
- Wyoming
Forming a Series LLC: Step by Step Guide
- Choose your state (noting that not all states offer series LLCs as an option).
- Choose a name: Next, choose a name for your series LLC. Make sure the name complies with the state’s naming requirements and is not already taken by another business.
- File formation documents: File the formation documents with the state’s Secretary of State or Division of Corporations or equivalent organisation. The documents typically include articles of organization and a series LLC operating agreement. The operating agreement should specify the structure and organization of the series, as well as the rules and procedures for managing each series.
- Obtain necessary licenses and permits: Depending on the nature of your business entity, you may need to obtain licenses and permits from state and local authorities.
- Create separate series: Once your series LLC is formed, you can create separate series within the LLC. Each series should have its own distinct name, management structure, and business activities.
- Maintain separate records: It’s important to maintain separate records for each series, including financial records, contracts, and other legal documents.
It’s important to note that the formation requirements for a series LLC may vary by state, and some states may require additional steps or documentation. It’s recommended to consult with a legal professional, tax advisor or a business formation service to ensure compliance with state law requirements.
Using a Series LLC
A series LLC can be useful for various purposes, depending on the specific needs of your business. Here are some common use cases for a series LLC:
- Real estate investing: Series LLCs can be useful for real estate investors who want to separate their investments into different series, each with its own properties, management, and financing. This allows investors to obtain liability protection and protect the assets of each individual series.
- Franchise operations: A series LLC can be used by franchise owners to operate multiple franchise locations under separate series. This can help to protect the assets of each location and simplify the management of multiple franchises.
- Business expansion: A series LLC can be used by businesses that want to expand into new markets or product lines. Each series can operate as a separate business entity with its own management, assets, and liabilities.
- Holding companies: A series LLC can be used by holding companies that own multiple subsidiaries or assets. Each series can hold a separate asset or subsidiary, which can help to protect the parent company’s assets in case of a lawsuit or other liability.
- Asset protection: A series LLC can be used by individuals or businesses to protect their assets from creditors or legal claims. By separating assets into different series, each with its own liability protection, the overall risk can be reduced.
Disadvantages of the Series LLC structure
While a series LLC can offer many advantages, there are also some potential disadvantages to consider. Here are some of the main disadvantages of a series LLC structure:
- Legal uncertainty: While many states have recognized the series LLC structure, the legal treatment of series LLCs is not yet well-established. This can create uncertainty around the liability protection and tax treatment of the individual series.
- Formation requirements: Forming a series LLC can be more complex and expensive than forming a traditional LLC. This is because each series within the LLC must be established and maintained separately, which can require additional paperwork, filings, and legal fees.
- Limited availability: Not all states allow for the formation of a series LLC, which can limit the options for businesses that want to use this structure.
- Tax complexity: The tax treatment of a series LLC can be complex, as each series may be treated as a separate entity for tax purposes. This can require additional accounting and tax preparation work, and may not be suitable for businesses with limited resources.
- Limited transferability: Transferring assets between series within a series LLC can be complicated, and may require additional legal and accounting work.
Overall, a series LLC can be a useful structure for certain types of businesses, but it’s important to carefully consider the potential disadvantages and consult with a legal professional before deciding if it’s the right choice for your business.
