While most people are familiar with the limited liability company (LLC), fewer are aware of a powerful variation known as the Series LLC. This structure offers organizations a way to protect their assets from liability, often providing greater flexibility and cost efficiency compared to traditional structures.
This is ideal for certain types of businesses (e.g., real estate investors, fast food restaurants, trucking and transport leasing companies), however, to help you understand whether this structure could be suited to your business, we’ve written this article breaking down its nuances.
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A series LLC consists of a master LLC with one or more individual (or “child”) series LLCs branching off from that parent company. The master LLC — also called an “umbrella” or “parent” LLC — is the main LLC to which the individual series LLCs connect; it’s also responsible for filing taxes on behalf of the full series.
Under this structure, each series LLC can have its own assets and liabilities, which are legally separate from those of the other series and the master LLC. This means that, as long as the LLC remains compliant, the debts and liabilities of one series cannot be enforced against any other series or the master LLC, providing a significant layer of liability protection.
The formation of a separate series within the same LLC was first permitted in 1996 under Delaware’s statutory trust law. These Delaware Series LLC statutes also dictated that each series may have different members — or the same members with different percentages than in other series apart from the master LLC — thus providing flexibility for projects with multiple investors.
Since then, a number of other states have embraced the series LLC structure, including Nevada, Oklahoma, Iowa, and Illinois.
One of the best benefits of forming a series LLC is the ability to protect each individual series LLC and its assets from the liabilities of the other individual series LLCs and the master LLC. Investors can manage wealth by dividing investments between the individual series LLCs based on potential return and risk.
The series LLC business structure also quickly became the entity of choice for real estate holdings because it allows investors to separate — and protect — their individual properties.
As previously noted, an individual series LLC also doesn’t have to file taxes. The master LLC files taxes on behalf of the full series. Furthermore, the series LLC structure is less complicated and less expensive than creating a corporation with subsidiaries.
Forming a series LLC also allows you to appoint separate members and managers within each of the individual series — meaning members and managers can have different percentages of ownership and separate duties, powers, and rights.
In addition, businesses with several profit centers can shield and separate their business operations and individual series LLC can enter into contracts as well as acquire and sell assets. But, remember to consult with an accountant familiar with the series LLC state tax code before you decide to form this type of LLC.
Series LLC rules and regulations vary by state, and only 21 states currently allow the formation of this type of LLC.
Federal lawmakers recently created the Uniform Protected Series Act which, once adopted by the individual states, aims to reduce the risk of the series LLC business structure while supporting its widespread use across the country.
States that currently allow the series LLC structure include:
It’s worth noting that this list of states allowing series LLCs often change over time.
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Before you decide to form a series LLC, you should consider several key factors. If you plan to sell goods or services in a state that doesn’t currently allow the series LLC structure, for example, your assets held by the individual series in that state might not have the same protection as the rest of your company.
The series LLC structure also is more complex than other forms of LLCs, and there haven’t been many court cases to demonstrate what might happen in certain legal situations. For example, it remains unclear whether or not an individual series has protection in federal bankruptcy court. The Uniform Protected Series Act, once adopted by the individual states, will provide this protection.
Until then, you must follow state regulations carefully when forming and operating a series LLC. If you don’t, the series won’t offer the liability protection it should have. As such, we strongly recommend you discuss the possible risk of forming a series LLC with an attorney.
The process to form a series LLC is similar to setting up a traditional LLC, and involves five key steps.
Series LLC naming rules vary by state, but typically require the use of the phrase “protected series” within the name of each company. You also should name the master LLC in a way that distinguishes it from the individual series LLCs. In addition, include the full name of the master LLC in the name of each child series LLC.
Here’s one example of a series LLC naming format:
My Business, LLC, a series LLC
123 Main Street, LLC, an individual protected series of My Business, LLC, a series LLC
A registered agent is a person or business that sends and receives legal papers on your company’s behalf. Most states require LLCs to nominate a registered agent during the formation process. Your registered agent must be a resident of the state in which you conduct business or a corporation authorized to conduct business in that state.
Once you’ve decided to form a series LLC, filing it correctly within your state is crucial. Be sure to confirm the exact requirements in your jurisdiction, as they can vary depending on the state in which you’re establishing the series LLC.
For example, in some states you must include detailed information about each series within the LLC in your Articles of Organization. This might involve listing the names of each series, their purposes, and the specific assets and liabilities associated with each one.
However, other states have less stringent documentation requirements and do not necessitate such detailed disclosures in the Articles of Organization. Instead, they may require a more general statement indicating that the LLC is authorized to establish series LLCs.
While it’s not often a requirement, filing an LLC Operating Agreement is always highly recommended. This is a legal document that outlines the ownership structure and membership interests of your new LLC.
Even in states where this is a requirement, you won’t need to file your Series Limited Liability Company agreement with the state like it does for its Articles of Organization, instead it only needs to draft it and keep it on file in order to ensure the proper protection of its series.
An Employer Identification Number (EIN) is a tax identification number the Internal Revenue Service (IRS) and some states use to track tax matters related to your business. Because series LLCs are a fairly new type of business entity, the rules surrounding them are continually being updated.
With that being said, the IRS generally treats different businesses under a series LLC similarly to how the state in which that series LLC was formed treats those businesses (i.e., as distinct entities).
Read our guide on How to Start an LLC for more information.
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An LLC is a single limited liability company, while the series LLC concept is made up of a master LLC with one or more individual series LLCs branching off from that parent company.
This allows each individual LLC within the series to have separate bank accounts and be protected from liabilities and losses suffered by any others in the series, or the master LLC.
The cost of forming a series LLC can range from $50 to $1,000, depending on the state. However, this is highly dependent on the optional extras you may decide to purchase, such as professional registered agent or LLC formation services.
Check out our How Much Does it Cost to Form an LLC guide for details.
There are currently 21 states that allow the formation of series LLCs including Alabama, Arkansas, Delaware, District of Columbia, Illinois, Indiana, Iowa, Kansas, Missouri, Montana, Nebraska, Nevada, North Dakota, Oklahoma, Puerto Rico, South Dakota, Tennessee, Texas, Utah, Virginia, and Wyoming.
For more information on this topic, check out our Series LLC article.
Yes, a series LLC needs its own EIN — if a state treats each business under a series LLC as separate entities, the IRS will do the same. This ensures that each series can have a separate bank account and carry out proper tax reporting and is compliant with series LLC laws.
If you’re thinking about getting started, check out our How to Start an LLC article for more information.
Information on this page was researched and gathered from a multitude of sources and was most recently updated on September 6, 2024
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