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A series LLC is a popular entity choice in some states for real estate investors and owners of multiple businesses wanting to operate multiple businesses under one umbrella.
Both a regular Limited Liability Company and series LLCs afford the same liability protection of the owner’s personal assets. Where a “regular” LLC is an entity can essentially hold multiple businesses under its umbrella, each business in the LLC could be affected should another one be sued. The structure of a series LLC includes a master LLC with one or more individual “series” LLCs under the umbrella of the master. This allows the individual series to be protected from liabilities against the other individual series.
In a series LLC, each series can have separate owners as well hold assets and assume liabilities individually.
Since a series LLC can provide the same benefits as a regular LLC, the series structure can be beneficial. Establishing a series LLC to administer your many businesses is advantageous in that the risks and liabilities that impact one LLC won’t affect the assets of the other entities.
The series LLC is appealing for many types of businesses because it allows them to form multiple LLCs easily, you can only form one in Alabama, Delaware, the District of Columbia, Illinois, Indiana, Iowa, Kansas, Missouri, Montana, Nevada, North Dakota, Oklahoma, Puerto Rico, Tennessee, Texas, Utah, Wisconsin, and Wyoming. Each state has different requirements that should be researched before forming.
Forming a Series LLC
Forming a series LLC first requires registering as an LLC with the Secretary of State’s office in your state. The Articles of Organization (sometimes called the Certificate of Formation or similar name in some states). For a series LLC the Articles of Organization is only filed once and the additional series are formed through the processes required by the state of formation.
Next, an operating agreement is needed for the master LLC and all other LLCs in the series. The operating agreement is a legal document outlining the rules and regulations of how the LLC operates. The operating is usually a privately held document.
Series LLC Advantages
The greatest advantage of the series LLC is that if one of the units get sued, the other units are usually safe from lawsuits or creditors.
Another benefit to a series LLC is the reduced costs and administrative tasks, paperwork and filing requirements versus operating multiple Limited Liability Companies.
Disadvantages of a Series
Operating multiple businesses under one LLC offers the potential of lower administrative and recordkeeping expenses however there are some downsides.
For starters, very detailed recordkeeping is required for a series LLC in order to maintain liability protection. Each needs to have its own set of books, bank account and records to operate like a separate entity. The IRS has ruled that in certain instances, each series should be taxed as a separate entity. Also depending on the state, some series LLCs will pay only a single state franchise tax or may be required to pay separate fees for each series.
Also, businesses physically operating in other states may want to reconsider the series LLC structure as a series LLC is not recognized in all states and may jeopardize the liability protection.
Last, the treatment of series LLCs in bankruptcy proceedings is still unclear. Since series LLCs are unique and not the same in all states, it is not always certain how the remaining series are treated if one files for bankruptcy.