A series LLC is a business structure that allows a business owner to create multiple series under one umbrella LLC. Each series is insulated from liability for the actions of the others. For a business with multiple lines or divisions, the series LLC structure can minimize liability and serve as an alternative to setting up multiple separate LLCs.
Series LLCs are currently allowed in less than half the 50 states, but forming a series LLC is as easy as setting up a traditional LLC. The procedure for creating a series varies by state.
Forming a series LLC
A series LLC consists of a parent limited liability company (LLC) with one or more series or cells under it. Each series is treated as a separate entity under state law, with its own bank account, assets,liability protection, and management structure. If a series is properly set up and maintained, legal action against an individual series cannot be enforced against the master LLC or any other series.
The series LLC structure is commonly used by mutual funds, real estate investors, and entrepreneurs who want to operate multiple lines of business under a single entity. The liability protection of a series LLC closely mirrors the protection of completely separate LLCs but without the cost and administrative burdens of maintaining numerous legal entities.
States that allow you to form a series limited liability company
Series LLCs were first established in Delaware in 1996, and a growing list of states now allow them. You can form a series LLC in Alabama, Arkansas, Delaware, Illinois, Indiana, Iowa, Kansas, Missouri, Montana, Nevada, North Dakota, Ohio, Oklahoma, Puerto Rico, South Dakota, Tennessee, Texas, Utah, Virginia, the District of Columbia and Wyoming. You cannot form domestic series LLCs in California, but California does allow a series foreign LLC to register to do business there.
How to create a series LLC
Starting a series LLC is a straightforward process,similar to creating a single LLC. Here are the steps involved.
- Choose a name for the new LLC. The series LLC's name must comply with state LLC name regulations.
- Get a registered agent. Every LLC must have a registered agent to receive lawsuits and other legal notices on the LLC's behalf. The registered agent may be an individual state resident, or it may be a company that provides registered agent services. The registered agent for the master LLC also serves as an agent for all the series.
- File series LLC formation documents.
File articles of organization or a certificate of formationwith the secretary of state or other state agency and pay filing fees. The articles must specifically authorize the LLC to create series. Some states have a different form for series LLCs than for ordinary LLCs
Series LLC operating agreement
An operating agreement authorizing the creation of series is an essential component of a series LLC. The agreement should include the same information as an operating agreement for an ordinary LLC, including membership interests, management structure, profit and loss allocation, and procedures for member admission and withdrawal.
A series LLC operating agreement must also authorize series, specify that each series has its own ownership structure, management, and financial structure, and state that one series will not be liable for the actions or debts of any other series. Typically, the LLC agreement must be amended each time a new series is created.
How to add series to a series LLC
You can establish series when you form a series LLC, and you can add additional series later. A series can have different members, management, business purposes, and objectives than the parent LLC, or it can have the same members, management, and purpose as the parent.
The procedure for adding a series begins withamending the operating agreementto reflect the addition of a new series. In some states, this is all you need to do, but in most states, you must also file a document with the state. Some states have naming requirements for series.
Here's a state-by-state breakdown:
Alabama:No state filings are required to add individual series.
Arkansas:File a protected series designation. Protected series names must begin with the name of the series LLC and include “protected series," “P.S.," or “PS," and a unique identifier (such as 1, 2, 3, or A, B, C) after the protected series name.
Delaware:An LLC can establish a protected series in its operating agreement. It can also establish a registered series by filing a certificate of registered series. The registered series name must begin with the complete name of the parent LLC and must be available for use in Delaware. Registered series can obtain good standing certificates and can more easily comply with Uniform Commercial Code requirements, but they also pay an annual state tax.
Illinois:File a certificate of designation. Series names must begin with the parent LLC name and be distinguishable from other business names registered with the state.
Indiana:File articles of designation. Series names must include the word “series" and the name of the master LLC.
Iowa:File a protected series designation with the state.
Kansas:File a certificate of designation. Series names must include the name of the limited liability company and be available for use in Kansas.
Missouri:Amend the LLC agreement and file an amendment to the articles of organization along with an attachment. The series name must include the word “series" and the name of the parent LLC. It must be distinguishable from other names in the series.
Montana:Each individual series must have its own operating agreement. That agreement must be attached to the master LLC's articles of organization.
Nevada:Series can be created in the series LLC operating agreement without state filings or naming restrictions.
North Dakota:Child series are established in the series LLC agreement and must be listed in the LLC articles of organization or amendments. Series names must begin with the full name of the parent LLC, followed by the word “series" and a numeral, beginning with “1" for the first series established. Each child series must register its name as a trade name.
Ohio:Individual series can be established in the operating agreement. No additional state filing is needed.
Oklahoma:A series can be established in the operating agreement; there are no other naming or filing requirements.
Puerto Rico:A series can be established in the operating agreement.
South Dakota:File a certificate of designation. The series name must contain the full LLC name and be distinguishable from other series names.
Tennessee:An individual series can be established in the operating agreement; there are no other naming or filing requirements.
Texas: A protected series can be established in the LLC agreement, while a certificate of registered series must be filed to create a registered series. Registered series may have an easier time doing business with lenders and title companies.
Utah:No state filings are necessary. A series name must contain the name of the series LLC and be distinguishable from the names of other series.
Virginia:File a statement of protected series designation. The series name must begin with the name of the series LLC and include “protected series," “P.S.," or “PS." It must be distinguishable from other business names registered with the state.
Washington, D.C.:File a certificate of series designation. Series names must contain the full name of the series LLC and be available for use in the district.
Wyoming:Series are established in the articles of organization or amendment. The series name must begin with the full name of the LLC, followed by an optional additional name or descriptor set off by hyphens, followed by a sequential numeric designation beginning with “Series 1."
To maintain limited liability, each LLC in the series must have its own bank account, separate assets, and separate books and accounting. These must be kept separate from each other and from the parent LLC.
After you form a series LLC
Like any LLC, a series LLC will needan Employer Identification Number(EIN). Depending on the state, series LLCs may have annual reporting and franchise tax requirements. Child series also have reporting and tax requirements in some states.
What is the difference between a standard LLC and a series LLC?
A standard LLC is a single business entity. Individual members are shielded from personal liability for LLC debts, but LLC creditors can go after all assets owned by the LLC. A series LLC structure can operate a number of series under one umbrella LLC, with each series insulated from liability for the debts of the others.
For example, real estate investors can form a series LLC with a series for each rental house they own. If there's litigation against one property, that house is at risk, but the others are protected. A landlord operating all the rentals under one standard LLC could lose multiple houses in litigation against just one of them.
What is the disadvantage of a series LLC?
In most states, you can't form a series LLC. And because series limited liability companies are a relatively new concept, there are few legal precedents. For example, it's unclear whether series LLC liability protection will be recognized in a state that doesn't allow series LLCs. Similarly, it's unknown how a federal bankruptcy court will view series LLCs.
How is a series LLC taxed?
Like a traditional LLC, a series LLC is automatically taxed like a sole proprietorship if it has one owner and like a partnership if it has multiple owners. A series LLC can also elect to be taxed as a corporation.
There is some uncertainty about whether individual series should be combined with the master series for federal income tax purposes or whether series should be taxed as separate entities. The IRS issued a proposed regulation in 2010 that would treat each series as a separate taxable entity, but that regulation has never been finalized.
State tax treatment may be different. For example, in California, each individual series is considered a separate entity for tax purposes and is liable for franchise taxes. Consult with a tax adviser if you're considering a series LLC.
Is a series LLC the same as an S corp?
No. A series LLC is a type of business entity consisting of a single LLC umbrella with series underneath it. An S corp is a federal tax classification. Corporations and LLCs (including series LLCs) that meet IRS guidelines can elect to be taxed as S corporations.
Is a series LLC a good idea?
A series LLC business structure may minimize your liability exposure if you have multiple types of business activities. Series LLCs can be valuable in industries ranging from real estate and investments to trucking. A series LLC can limit liability in much the same way as separate LLCs, but they typically cost less to form and maintain.
However, small businesses may find a series LLC more complicated to operate than a single standard LLC. You'll need separate bank accounts and financial accounting for each series. An experienced attorney can help you decide whether a series LLC is worthwhile for your business.
Is a series LLC the same as a separate LLC?
A series LLC is similar to a separate LLC business structure from a liability standpoint. Unlike separate LLCs, series LLCs can usually use the same registered agent, do not need to create and maintain multiple business entities, and may be able to file only one federal tax return.
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