One of several types of limited liability companies, the term series LLC refers to an LLC that allows for segregation of the membership interests, operations, and assets into various independent series without any limit. Each of those series will then operate as its own separate entity. This includes having its own bank account, records, books, and name.
Each series of the series LLC can include different managers and members. Furthermore, the obligations and rights of those managers and members can vary based on series. The individual series can enter contracts, hold titles to personal and real property, and be sued or sue.
The key distinguishing factor of series LLCs is that each series has liability protection. This protection is important because assets that one series owns receive protection from liability risk associated with the other series, even within a single series LLC.
The idea of series LLCs is very similar conceptually to corporations that feature several subsidiaries. The main difference is that a series LLC is specifically designed as a way to segregate risk while not having to worry about the time and cost associated with creating new entities.
Which States Allow Series LLCs?
A series LLC gets created by the state, and as such, not every state allows their formation. Delaware led the trend, being the first to authorize series LLC creation. Other states that also allow series LLCs include Alabama, the District of Columbia, Indiana, Iowa, Kansas, Montana, Missouri, North Dakota, Wisconsin, Wyoming, Iowa, Illinois, Oklahoma, Nevada, Texas, Tennessee, and Utah, plus Puerto Rico.
Even among the states that allow series LLCs, specific regulations may vary. Illinois, for example, restricted rights of a series LLCs’ members as far as creating new series due to the requirement of a public filing.
California and some other states take the middle ground. These states do not have state laws allowing the formation of a series LLCs. However, California and similar states do allow series LLCs from other states to register within the target state (such as California) and then conduct business there.
How to Form Series LLCs
The process for forming series LLCs is very similar to forming the typical LLC. You start by filing articles of formation and submitting them to the government entity in charge of this process. In most cases, you will need your articles of formation to specifically authorize your LLC to create a series.
After filing the articles of formation, you must create the operating agreement. Your master LLC, as well as each series that you will form, must have one. You can create more series in the future whenever you need another.
The operating agreement of your master LLC will typically outline the rules for your series LLC’s overall operations. The operating agreements of each series outline customized rules related to operations.
A very convenient part of series LLCs is that articles of formation only need to be filed once. You form the master LLC, and every additional series gets formed via whatever internal mechanisms you outlined within the various operating agreements. In most cases, you would simply amend the operating agreement for your master LLC, then add a series.
How to Use Series LLCs
Your series LLC is an entity for business that is flexible and easy to use. The key draw of a series LLC is its ability to isolate and protect properties within each series from property liabilities within other series. As such, series LLCs are very popular for investors in real estate with multiple properties. They can also be useful for businesses with multiple profit centers that require segregation and shielding to reduce liability.
To ensure that each series of your series LLC maintains its liability protection, you must treat every series as its own separate company. As such, each must have its own records and books as well as bank accounts. You must sign contracts with the series’ name, document each of the series’ transactions, and ensure each series has sufficient capital available for business.
Series LLCs and Taxes
The tax issues related to a series LLC become more complicated and can vary by state. The biggest difference between states is whether the separate series are taxed in the form of separate entities. In California, for example, the state’s Franchise Tax Board treats each series as its own entity. As such, every series has to pay an LLC fee and annual tax, plus file separate tax returns. This varies by state, so it is important to consult an expert for your state to avoid tax trouble.
Written By
Brandi Joffrion is a skilled attorney with extensive experience in diverse areas including litigation, estate planning, and creating limited liability companies and corporations. She is also a professor and former offshore anti-money laundering compliance officer. Brandi can provide you with particular advice on your specific situation in the areas listed above. Brandi is licensed to practice law in Colorado.
