What Is A Series LLC? Everything You Need To Know (2024)

An LLC is a business structure that provides entrepreneurs and real estate investors with limited liability. This company structure serves to protect its owners from personal liability for business lawsuits and debts.

A series LLC consists of a “parent” or “umbrella” LLC with one or more sub-LLCs or “series” that branch off from it. All the child series are isolated from each other.

Under the series LLC, owners can create an unlimited number of child series with separate assets, members and operations. Each child series or sub-LLCs should have its own bank account, name and records. If there is a lawsuit incurred by one series, the other series are protected from liability.

Series LLCs can be useful for LLCs that operate multiple lines of business or investments and want to insulate each line from risks incurred by the others. Common examples include real estate investors with several rental properties and investment firms with multiple investment strategies. Without a series LLC, these businesses would have to form separate LLCs for each facet of their business to gain the same type of liability protection.

In the United States, Delaware was the first state to allow the creation of a series LLC.

Here is a list of other states that permit series LLCs:

• Alabama
• Arkansas
• Delaware
• Illinois
• Indiana
• Iowa
• Kansas
• Missouri
• Montana
• Nevada
• North Dakota
• Oklahoma
• Puerto Rico
• Tennessee
• Texas
• Utah
• Virginia
• Washington, D.C.
• Wyoming

The list of states may change over time. Some states, such as California, do not allow the creation of series LLCs but will authorize series LLCs created in other states to do business there.

The process of forming a series LLC varies from one state to another. Here are four general steps to keep in mind so the process goes smoothly.

Determine Series LLC Name

Naming rules for series LLCs vary per state. They must comply with general LLC naming rules, such as having a name that’s not too similar to other business names registered with the state and including an LLC identifier in the name.

In addition, the parent LLC must have a distinct name from its sub-LLCs. The full name of the parent LLC usually must be included in every series name. For example, “My Gift Shop LLC” could be the parent LLC while the sub-LLCs could be named “My Gift Shop LLC series A” or “My Gift Shop LLC series B.”

This makes it easy for creditors and investors to know each child series is part of a series LLC. In addition, some states like Illinois and Kansas require filing a certificate of designation for each series.

Get a Registered Agent

Most states require formal businesses to get a registered agent. This individual will receive lawsuits and other legal documents addressed to the company.

Although registered agent requirements can vary somewhat, the agent usually must be a resident who has a business address in the state where the series LLC is filed. The agent may also be a company authorized to do business in the state where your LLC is formed.

Another option is to hire a company that specializes in registered agent services. The rates vary from $49 and $300, but you should be ready to pay a justifiable rate in exchange for their annual service.

Filing Your Series LLC Paperwork

You’ll form a series LLC by filing articles of organization with your state business registration agency, usually the secretary of state). The articles must specifically state that the LLC can establish a series. Some states have a separate form for series LLCs. In addition, draft an LLC operating agreement to outline the ownership structure, member roles, provisions and rules within the series LLC. You don’t need to file the operating agreement with the state.

Most states have specific guidelines for filing paperwork and creating a series LLC operating agreement. Make sure to read them and get in touch with an experienced attorney to avoid any complications.

A series LLC can limit your business’s liability but there are some tips to keep in mind to take advantage of this unique business structure.

Establishing a Series

A series can have the same members as the umbrella LLC or it can have different members. It must maintain separate bank accounts and other assets, and it must operate separately from the other series or the parent LLC.

The procedure for creating a series varies by state. Generally, you’ll need to amend the series LLC operating agreement. In some states, you must file a certificate of designation with the state. In others, you may need to amend your articles of organization.

File Tax Return on Master LLC

Currently, a series LLC can file one federal tax return that encompasses the master LLC and all the series. However, the IRS has issued guidance suggesting that each series should be treated as a separate taxable entity. If that guidance is ever adopted, you’ll need to file a tax return for each series.

States may approach series LLC taxation differently than the federal government. For example, if you register a series LLC to do business in California, you’ll need to pay a separate state franchise tax for each series. Check with your state taxing authority to find out how to manage state taxes for your series LLC.

Establish LLC Agreement

The LLC operating agreement should have specific details to protect the business and its owners.

Here are some of the details to include in the operating agreement:

• Ownership percentage: Most co-owner’s interest percentage is based on their contributions.
• Series: Include language specifically authorizing series and establishing each series as having a separate financial and management structure.
• Accounting: Outline your business method of account, fiscal year and provisions for disclosing balance sheets and statements of operations.
• Profits and losses: Decide the number of distributive shares each owner is entitled to and how often profits will be distributed, such as per month, quarterly or yearly.
• Managerial structure: Define the management and decision-making process of the LLC to prevent misunderstandings.
• Voting process: Put into writing the procedures and rules for voting and the amount of voting power each owner has.
• Member withdrawal: Nothing lasts forever⁠—and the same could be true for your business. Make sure to have default rules for ending your series LLC and contingency plans for when an owner leaves your business.

Bottom Line

Establishing a series LLC may seem like a complicated process when you don’t know where to start. A good tip is to check the requirements in your state to determine how to form a series LLC and file tax returns. Regardless of the LLC structure, consult a lawyer when drafting your LLC operating agreement and when deciding the structure of your organization. Learn more about how to set up an LLC.