Learn about how a series LLC can help your business
Updated:Apr 12, 2024
Authored By:Miranda Riva, J.D.
Reviewed By:Laura Jackson, Esq.
While researching the limited liability company formation process, you may have come across the term series limited liability company or“series LLC” and you might be wondering what that is. The quick answer is that a series LLC is an umbrella entity that can house several LLCs (or any other business entity) within it. Holding smaller companies within a larger entity is a common structure that corporations use to keep small businesses separate from one another but still under the same parent corporation.
This guide will dive into how a series LLC works, review the pros and cons of the structure, and help you learn whether it’s the right configuration for your business.
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What Is a Series LLC?
Less than half of the states in the U.S. allow the creation of series LLC — but some states (like California) that don’t allow their creation will allow a series LLC created under a different state’s laws to register and conduct business as usual. In the states that do allow formation of a series LLC, the structure is generally the same.
States that permit creation of a series LLC:
Alabama | Kansas | Oklahoma |
In a series, there is a parent LLC (or a master LLC) that holds separate LLCs (also called series or subsidiaries) that are each treated as a separate entity with their own bank accounts, operating agreement, asset protection, members and name. Many business owners choose to structure as a series because there is an additional layer of liability protection between each subsidiary within the parent LLC.
Businesses That Benefit as Series LLCs
Although the characteristics of a series LLC may seem great for any business, the truth is that it’s not the best option for all business owners. There are additional annual fees for each subsidiary and you can end up making more work for yourself. Additionally, your state may not allow series LLCs.
Below are some examples of businesses that will benefit as a series LLC.
Real Estate
Series LLCs are an ideal choice for real estate investors looking for a strong liability shield. There is no minimum or maximum limit on the assets an LLC can hold so investors could potentially keep each property they own in a separate LLC under the parent LLC. This would protect each property from being liable for a different property’s loss.
ⓘ | Law in Action: “Jack’s LLC” owns five rental properties, each worth $50,000. Jack has a personal wealth of $100,000. One of Jack’s LLC’s properties is sued for $100,000 when a tenant is injured on the property. When Jack’s LLC loses in court, the tenant can collect their damages (totaling $100,000) from the assets held by the LLC. They can force the sale of two of Jack’s LLC’s properties and Jack’s personal wealth is protected. Now imagine that Jack formed his LLC as a series and Jack’s LLC is the parent company. Under the parent, he has five separate LLCs (LLC 1, LLC 2, LLC 3 . . . etc.) each holding one of the rental properties. In that scenario, when the tenant sues one of the subsidiary LLCs (let’s say LLC 1) for $100,000 and wins, they can only recoup damages from that single company (valued at $50,000) The other properties are shielded from that property’s liability. |
Unrelated Businesses Within a Company
Any company that intends to open and run several smaller, unrelated businesses may benefit from creating a series structure. Just like properties in the example above, an LLC can hold several different LLCs (or other entities) that hold separate businesses. The liability protection benefits are the same for business owners as for real estate investors.
Alternatively, the LLC would use different DBA (doing business as) or trade names to make each business distinct from one another. However, they will still be part of the same legal entity so no individual business is protected from the liability of the other businesses.
Series LLC Pros and Cons
Pros
Extra liability protection for high-risk investmentsUnlimited number of subsidiaries (and assets within subsidiaries) can be held under one parent LLCSeries LLCs benefit from a corporate-like organization without the double taxation corporations are subject to
Cons
Only allowed to operate in certain jurisdictionsRelatively new concept so laws around series LLCs are not very developedCan get complicated when too many subsidiaries are formed (LLC operating agreements, annual reports, accounting and filing fees)
Starting a Series LLC
The process for starting a series LLC is very similar to starting a non-series LLC. Before getting set on this structure, you should confirm that your state allows the creation of a series. Next, you’ll need to come up with names for your LLC parent entity and each subsidiary within the parent. Each state has requirements for naming the subsidiaries. For example, some require the parent name to be included in the subsidiary names.
After that, you’ll need to file articles of organization with the appropriate state office (usually the secretary of state). There’s usually a box on the LLC formation document to check if you’re forming a series, otherwise it may be a different document entirely.
Depending on your state, you might also be required to designate a registered agent for parent LLC and every LLC formed within it. You’ll also need to apply for an EIN from the IRS for tax purposes. You’ll need a number for the parent and each of its subsidiaries — the good news is that EIN applications are free.
Create Operating Agreements
Most importantly, you’ll need to create an LLC operating agreement for the parent and each of the LLCs within it. Even if you form in a state that doesn’t require an operating agreement, it is a best business practice to do so.
The parent LLC’s operating agreement should include:
- Name of each subsidiary
- Membership information
- Management structure
- Accounting details
- Voting protocol
- Subsidiary organization structure
- Outline of liability protection
Each subsidiary LLC’s operating agreement should include:
- Name of the parent LLC
- Membership details
- Accounting information
- Outline of liability protection
- Management structure
What Is a Series LLC? – FAQ
The difference between a series LLC and a non-series LLC is the additional layer of liability protection. If you create a non-series LLC there’s only a liability shield between the LLC and the members. In a series, the members of every LLC (parent and subsidiaries) are shielded from business liability, and additionally, each individual series within the parent is shielded from the liability of the other subsidiaries.
Series LLCs are mainly used for real estate investors that want to hold their properties in separate entities to enhance their liability shield.
Yes, if you live in a state that allows their formation and you run a business that would benefit from enhanced liability protection (like real estate). However, if your company doesn’t hold a lot of separate assets or run many separate businesses, then it might not be worth the extra filing fees and paperwork.
Not quite. An S-corp is not a business entity, but rather a tax structure created by the IRS. An LLC can file a Form 2553 with the IRS to apply for S-corp status, but S-corps are not independently existent (unlike C-corps or corporations).
The benefits of a series LLC include:
- Extra liability protection for high-risk investments
- Unlimited number of subsidiaries (and assets within subsidiaries) can be held under one parent LLC
- Use of a corporate-like organization without the double taxation corporations are subject to
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Legal Disclaimer: This article contains general legal information but does not constitute professional legal advice for your particular situation and should not be interpreted as creating an attorney-client relationship. If you have legal questions, you should seek the advice of an attorney licensed in your jurisdiction.
Authored by: Miranda Riva, J.D. Miranda earned her Juris Doctorate from William & Mary Law School and holds a Tennessee Bar License. Before transitioning to legal content creation, she taught legal research, writing and citations to first-year law students at two different law schools. In her spare time, you can find Miranda hiking through the U.S. National Parks or spending time at the beach with her two Australian Shepherds.
Reviewed by: Laura Jackson, Esq. Laura graduated from Emory University School of Law with her Juris Doctorate and is an active member of the Georgia Bar Association. After several years of appellate advocacy and regulatory experience, Laura turned to full-time freelance legal writing. She currently writes for law firms, websites and other publications on a range of issues.
If you have feedback or questions about this article, please email the MarketWatch Guides team at[email protected].