What is a Series LLC?
A series limited liability company, commonly known as a series LLC is a unique form of an LLC that acts as a master LLC or umbrella over a series of separate legal entities. This can be a series of members, assets, managers or interests. The members of an LLC are the owners of the business.
The series LLC started structure originated in Delaware. As this business structure became more popular, it’s now an option in only eight more states: Delaware, Illinois, Iowa, Nevada, Oklahoma, Tennessee, Texas, Utah and Puerto Rico.
The series Limited Liability Company (LLC) can have multiple (a “series” of) members, managers, or business lines within it. Each series within the company can hold assets, have members, and pursue its own business objectives, all while enjoying protection from legal claims against other series within the company.
What is the purpose of a Series LLC?
The series LLC (SLLC) includes the master or umbrella LLC and other LLCs which are separated from each other for liability purposes. It’s a form of a limited liability company that provides liability and legal protection across multiple “series” each of which is theoretically protected from liabilities arising from the other series. In overall structure, the series LLC has been described as a master LLC that has separate divisions. The benefits of a Series LLC is each LLC is still its own business, controlled by the master LLC. However, for legal and Tax purposes the Master LLC is held accountable for its other entities.
Benefits of Series LLC’s
- Less Initial Start Up Cost: Only one filing fee is required, and an attorney or filing service such as Eastbiz.com – Incparadise, can set up the parent and cells at less cost than setting up multiple LLCs.
- Security of Assets: The assets of each entity are protected from judgments against assets in other entity.
- Lower Sales Tax: Contingent on the regulations in your state, the dues paid from one entity to another entity in the series might not be subject to sales tax. It’s important to refer to your state’s tax laws on this point.
- Administrative Freedom/ Less Administration: You can set up as many LLC’s as needed under the Master LLC, but each would be separate and would have to be administered separately. A series LLC gives you the ability to potentially save on administrative time and cost.
- Less Complex than Corporation: A series LLC doesn’t have the same tax complication/ obligations, structure, or formalities (corporate records, for example) as a corporation.
- Only one State Registration: Only the master LLC must be registered with the state, which means less legal and registration fees. It also implies that only one annual or biennial fee is needed for the series.
- Only one tax return: The master LLC is the only party obligated to file a tax return. That tax return will include all the entities LLCs. Make no mistake, this is going to call for a very complex tax return. So be extremely vigilant when selecting your tax preparer. Ensure the Tax preparer is very talented and knowledgeable in filing this type of tax return.
Potential Challenges of Series LLC’s
- Must have a Registered Agent: It’s likely that your state will require you to have a separate registered agent service for each LLCs in the series, which means additional expense for all of these registered agents. However, Incparadise offers an excellent RA service for all 50 states. The cost for out RA service is only $89 a year. For more info visit our website.
- Banking: Each entity LLC must have its own bank account and, since each is producing separate financial statements, each must have separate accounting records. If there are several LLCs in the series, this can be a big administrative issue.
- Registration/ Formation Pricing: The cost of forming a series LLC may be higher than the cost of forming a regular LLC.
- Bankruptcy: Since the series LLC concept is so new and upcoming; There is still legal clarification that is needed on how the individual LLCs might be dealt with in bankruptcy. It’s still to be determined if a bankruptcy court will recognize the separateness of different LLC entities within the series.
As you can probably see, there are many advantages to using a Series LLCs. Particularly in high-risk industries such as construction, real estate or even franchise organizations for financial planning and liability purposes. However, it must be understood that this still is a new and changing type of business structure.
For more information on series LLC’s, the different LLC types or assistance with filing for your new business, please feel free to contact Incparadise by visiting our website or at 702.871.8678. We offer many services to help assist you with setting up your new business.
Disclaimer: The purpose of this article is to provide general information about a business entity. This author is not promoting the Series LLC and no tax or legal advice is being given in this article. If you are considering a Series LLC and your state has this entity available, talk to your tax and legal advisors before you take any action.