If your existing LLC has obtained significant assets, it might be time to consider forming a series LLC. This business structure allows you to separate your assets across different companies, making them more independent while maintaining the degree of control, straightforward taxation, and easy reporting that an LLC offers.
But can you change an LLC to a series LLC without dissolution? Read on to learn more about series LLCs and the conversion process business owners have to follow.
Key Takeaways
A series LLC is a beneficial business structure that allows you to separate assets across multiple LLCs while maintaining a unified administrative and management structure.
Not all states recognize series LLCs, and those that do might impose additional restrictions or require separate filing for the state.
You can convert an existing LLC into a series LLC by filing the appropriate amendment forms in states that allow it or dissolve and create a new foreign series LLC.
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What Is a Series LLC?
A series LLC is a business structure that allows owners to operate multiple LLCs under one umbrella company. Depending on the jurisdiction, the “main” LLC is the parent LLC or master LLC, and the companies that are its constituents are cells or series LLCs.
Typically, a series LLC allows each cell to hold separate assets. It works similarly to how a traditional LLC offers limited liability protection by separating the members’ personal assets from the company’s assets.
That means if a lawsuit is brought up against one of the cells, only that cell’s assets are liable for remuneration. The other cells in the series are unaffected and sheltered by each LLC’s individual liability protection.
Due to this, establishing a series LLC is best for entrepreneurs who have gone past the early stages of startup and hold multiple valuable assets. The most common examples of series LLCs are with real estate investors, management, or franchising.
What States Allow Series LLCs?
A series LLC is not a universally recognized entity in the U.S. Delaware was the first state to include the series LLC designation in 1996. Since then, other states have followed, either by Delaware’s example or with a completely new interpretation of the structure that may or may not have the same legal and tax ramifications.
Here are the states or territories that recognize series LLCs:
Alabama
Arkansas
Delaware
District of Columbia
Illinois
Indiana
Iowa
Kansas
Missouri
Montana
Nebraska
Nevada
North Dakota
Ohio
Oklahoma
Puerto Rico
South Dakota
Tennessee
Texas
Utah
Virginia
Wisconsin
Wyoming
The remaining 28 states do not recognize series LLCs. It’s important to note that while some states may not allow the formation of series LLCs, they will allow series LLCs that were registered in other states to register as a business and conduct business in them.
For example, California allows a foreign series LLC to register in the state and operate independently, but the process must be repeated for every cell if it wants to function in the state.[1] Minnesota also allows foreign series LLCs to function as a single LLC entity in the state.[2] You can check state law to see if something similar applies to a state not mentioned in the list.
Pros and Cons of a Series LLC
Here’s a rough overview of what you can expect if you file for a series LLC or want to convert to one.
Pros of Series LLC
As mentioned, the primary benefit of a series LLC is to divide a single LLC’s assets across different entities for liability protection. While you could technically register a new LLC for each asset to get this result, forming a single LLC series with the Secretary of State office is much faster.
Additionally, a series allows an LLC to branch out into different industries or objectives. This allows you to create distinct positions and roles that can apply to one cell LLC but not the other while keeping the companies under the same umbrella of protection and limited liability.
Cons of Series LLC
The concept of series LLC is still relatively new, and states are adopting it into the code gradually, frequently with significant changes between one state and the next. Navigating the state codes can be messy if you don’t have up-to-date knowledge of the legal code in your parent state and all other states your LLC needs to operate.
Additionally, while some states have made managing a series LLC relatively simple, others have greatly diminished the benefits of having one. Some states go so far as to require the master and each individual cell LLC to file taxes separately, which only adds to the administrative strain.
Since each cell LLC needs to keep a record of what assets it follows, it can also be relatively easy to make a mistake when trying to transact between different cells. If you’re not careful when you create the initial series LLC infrastructure, you may be adding more work or even run into legal issues, which can annul any additional asset protection you need from the structure.
Finally, there is the tax situation to consider. Because the series LLC is a fairly new structure recognized by so few states, it is unclear how the members should file taxes. Should the members file taxes for each separate entity under the umbrella entity, or should they file for just the series LLC?
Even though California does not recognize series LLCs, the California Franchise Tax Board has determined that each entity is a separate entity; therefore, members need to file a tax return for each.
How to Go From an LLC to a Series LLC
If you already operate multiple businesses or plan to create a new LLC connected to your existing endeavors, a series LLC is likely a solid choice, provided you live in a state that recognizes the classification.
In that case, the process for converting an existing LLC into a series is generally straightforward.
1. Consult Your Secretary of State
Before you file any documentation, contact your Secretary of State office to confirm that your state allows series LLCs. The Secretary of State can also provide precise information on creating a new series LLC or how to amend an existing traditional LLC into a series.
2. Update Formation Documents
If you’re converting to a series LLC, there are generally two paths to take:
Submit amendment or structure change documentation to modify an LLC into a series LLC
Dissolve your existing LLC and create a new series LLC
Unfortunately, there’s no one-size-fits-all solution for the process. Each state can impose different requirements on what you have to do, or if you’re able to do it in the first place.
If you can convert your LLC without dissolution, you will generally need to do the following:
Amend your LLC operating agreement to contain the specific wording required by the state code to enjoy the protections offered by a series LLC
Submit new formation documentation — Articles of Organization, Certificate of Formation, or similar
File a certificate of amendment or amendment of registration to restate your formation.
Pay the appropriate filing fee
If necessary, you may need to repeat the LLC formation process for each cell LLC you register as a part of the series.
If your state requires you to dissolve your existing LLC before creating a series LLC, the first step is to file for dissolution. You can consult your Secretary of State office on the process, what forms you need to file, and how to distribute back the assets among the members. After that, you can file for a new series LLC with a new Articles of Organization and LLC operating agreement.
3. Separate Records for Each Series
Once you convert your traditional LLC into a series LLC, you must separate the cells from each other and the parent LLC.
Here’s what you’ll need to do:
Divide the assets between the LLCs (each asset must be uniquely identified or allocated to a single-cell LLC)
Obtain a separate Employer Identification Number (EIN) for each LLC
Procure business licenses and register for sales tax with the state’s Department of Revenue
File for taxes and submit annual reports on the LLC or each cell separately as mandated by your parent state or the state the LLCs operate in
From then on, each cell LLC operates as an independent unit. That means each will need to sign contracts with suppliers or employees independently. Cross-LLC transactions also need to be tracked as business transactions, and each LLC needs to have a separate bank account.
Ready to Make Your Series LLC Official?
As you can see, changing your LLC into a series LLC can be worthwhile if you want to keep growing your business or branch out into new markets. However, it requires careful legal navigation to ensure it goes as smoothly as possible.
If you want to reduce your administrative workload, register with Swyft Filings to streamline the process. We can keep your documentation in check, file any new documents you need to create new LLCs, and track annual reporting and taxation requirements.
FAQs
How do I convert my Texas LLC to a Series LLC?
You must adopt a conversion plan signed by all members of the LLC, modify your Certificate of Formation to contain the wording from the Texas code for series LLCs (Section 101.602.), and file a Restatement Certificate of Formation Form with New Amendments (Form 414).[3]
How do I convert my Delaware LLC to a Series LLC?
You must file a Certificate of Amendment for Limited Liability Company with the Division of Corporations. It must contain the new wording that your LLC is a series LLC, as noted in the Delaware code, Chapter 18.[4]
What are the disadvantages of a Series LLC?
A series LLC can have wildly different requirements based on your state and can create additional administrative burdens.
Is a Series LLC the same as a separate LLC?
No. Some states don’t recognize the term “series LLC” as a business entity and will require you to create a separate LLC for each business you want to create.
What is the difference between a Series LLC and a separate LLC?
A series LLC is an LLC that is subdivided into distinct smaller LLCs, which function as independent units with their own assets and membership interests.
Can you change an LLC to a Series LLC?
Yes, but only in states with the classification in their code. Currently, less than half of U.S. states recognize series LLC as a business structure.
Bibliography
State of California Franchise Tax Board. “Series LLC.” Accessed January 16, 2024.
Attorney Aaron Hall. “Minnesota Series LLCs.” Accessed January 16, 2024.
Texas Secretary of State. “Form 414: Restated Certificate of Formation with New Amendments.” Accessed January 16, 2024.
Delaware Division of Corporations. “Corporate Forms and Certificates for a Limited Liability Company.” Accessed January 16, 2024.
Originally published on October 25, 2022, and last edited on April 30, 2024.
