Theta Law Firm, LLP | How to Operate a Series LLC in California (2024)

How to Operate a Series LLC in California

The attorneys of Theta Law Firm are familiar with the formation, maintenance, and dissolution of various business entities in California. For advice on how to form your business or other legal questions relating to your business, please feel free to give us a call or send us an email.

What is a Series LLC?

A "Series LLC" is a master LLC that allows for the formation of separate LLCs within under a single Series LLC umbrella. Each unit can have different members/managers, names, bank accounts, etc. Each unit must maintain its own books and records. The separate units that form the Series LLC are treated as legally separate entities, as long as the proper formalities are satisfied. The major benefit to a Series LLC of course is that each unit is protected from the liabilities of the other units.

Can I Form a Series LLC in California?

As of the writing of this article, California does not allow the formation of a Series LLC,

but

it does allow foreign (another state) Series LLCs to register and operate in California. Delaware was the first state to allow for the creation of a Series LLC. For information on how to form a regular LLC in California, please view our article on how to form an LLC in California, which can be found here: www.thetafirm.com/articles

Operating a Series LLC in California:

A Series LLC formed in another state can be registered for operation in California. The Series LLC must file an application to register a foreign LLC, a form which can be found on the California Secretary of State's website. California's Franchise Tax Board requires that each series of the Series LLC (1) file its own Form 568 (California Limited Liability Return of Income Form) and (2) pay its own LLC annual tax and fee.

Each series must pay California's state taxes separately (currently, LLCs are subject to an annual minimum tax of $800). So there are no savings for California tax purposes in creating a foreign Series LLC as opposed to simply forming separate individual LLCs.

Drawbacks of a Series LLC in California:

There are some very clear drawbacks to registering a foreign Series LLC in California. California's state legislature has not yet formally allowed for the creation of a Series LLC. Members/managers of foreign Series LLCs run the risk of being denied the separate liability protection that Series LLCs are designed to provide in their home states because the law on Series LLCs operating California is sparse. Other questions are not completely resolved are whether the separate units of a Series LLC will be treated separately by the IRS for tax purposes and by federal law for bankruptcy purposes. With the lack of clear laws on the issue, operating an LLC, particularly in California, presents serious risks that any prospective business owner should discuss with legal counsel.