What is a Series LLC?
A series LLC is a unique form of limited liability company ("LLC") in which the articles of formation specifically allow for unlimited segregation of membership interests, assets, and operations into independent series. Each series operates like a separate entity with a unique name, bank account, and separate books and records. A series LLC may have different members and managers in each series. The rights and obligations of these members and managers differ from series to series. Each series may enter into contracts, sue or be sued, and hold title to real and personal property.
The most important characteristic of a series LLC is the liability protection that is available to each series. Assets owned by one series are shielded from the risk of liability of other series within the same series LLC. A series LLC is similar in concept to a corporation with several subsidiaries. However, the series LLC concept is designed to segregate risk within separate entities without the cost of setting up new entities.
States Permitting Series LLC
The series LLC is a creation of the state. Only in certain states are series LLCs allowed to be formed. Delaware was the first state to enact legislation authorizing the creation of series LLCs. Several states have followed suit including Illinois, Iowa, Nevada, Oklahoma, Tennessee, Texas, Utah and Puerto Rico. Some states, like California, do not allow for series LLCs to be formed under state law but series LLCs formed in other states can register with the state and do business in the state.
Forming a Series LLC
The series LLC is formed in much the same way as a regular LLC. You will need to file articles of formation with the appropriate governmental entity in a state where series LLCs are permitted. To be distinguished from a regular LLC, most states require that the articles of formation specifically state that the LLC is authorized to form series. Next, you will need an operating agreement for the master LLC and one for each series you plan to form. A series LLC can create additional series whenever one is needed.
The master LLC operating agreement generally provides rules for the overall operations of the series LLC. Likewise, operating agreements for each series provide customized rules for operations. One of the benefits of a series LLC is that you only have to file articles of formation once. After forming the initial master LLC, each additional series is formed through internal mechanisms spelled out in the operating agreements. Typically this is done by amending the master LLC operating agreement and adding an additional series.
Using a Series LLC
As a business entity, series LLCs are very flexible and simple to use. The series LLC can be used by real estate investors who own multiple properties. Each series isolates and protects its properties from the liabilities of the properties in other series. Companies with different profit centers can use series LLCs to segregate and shield each business operation.
To maintain the liability protection of each series it is important to treat each series as a separate company. This includes having a separate bank account, maintaining separate books and records, signing contracts using the name of the series, documenting all transactions, and keeping adequate amounts of capital on hand for business purposes.
Tax Issues
There are some unresolved tax issues regarding series LLCs, primarily regarding whether each series is a separate entity for tax purposes. The California Franchise Tax Board has taken the position that each series in a series LLC is a separate entity and therefore must file its own tax return and pay its own LLC annual tax and fee if it is registered to do business in California.
FAQs
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.
What is the difference between a series LLC and a restricted LLC? ›
Series LLCs comprise several cells, where each cell is a separate legal entity with its own liabilities, property, assets, and business objectives. Restricted LLCs don't have individual cells or separate members. They don't divide assets, managers, or owners into different groups.
What is the difference between a series LLC and a subsidiary LLC? ›
A series LLC is similar in concept to a corporation with several subsidiaries. However, the series LLC concept is designed to segregate risk within separate entities without the cost of setting up new entities.
What is a series of an LLC? ›
A series LLC is a group of LLCs which are owned in a tiered-down structure. The top tier LLC owns the lower-tiered LLCs. Each LLC has assets separate from the others, while the main LLC controls all the LLCs in the series. Each unit has its own owners (members) and is liable only for its own debts and obligations.
What is the difference between a single LLC and a series LLC? ›
Series LLCs may protect your properties better, as most lawsuits will be against one series, not the entire LLC. A series LLC can be more cost effective to set up and comply with tax obligations. Maintaining a series LLC is easier, as it bundles all your assets.
What are the disadvantages of a series LLC? ›
Another potential disadvantage of the series LLCs is that tax treatment and reporting requirements vary depending on the state. Sometimes, the rules aren't crystal clear. States might treat each series as a separate tax entity or have the master LLC and all series treated as a single entity.
Can I change my LLC to a series LLC? ›
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.
Does a series LLC file one tax return? ›
Each series is a separate entity for liability purposes. A Series LLC typically only has to file one tax return because the earnings and losses of the underlying series flow through to the master LLC. Furthermore, it only needs one bank account. This makes a Series LLC great for holding multiple rental properties.
Does a series LLC have its own EIN? ›
Like any LLC, a series LLC will need an 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 series LLC and professional LLC? ›
The main difference is that the formation document of a Series LLC will have to include a statement that the LLC may establish series which are protected from the liabilities of other series and the LLC itself. Some states have separate forms for Series LLC formations.
In some instances, a series LLC can lower the taxes you pay as compared to a sole proprietorship. A series LLC owner will file federal taxes in the same way that an LLC does. The series LLC will file a single tax return as the main LLC.
Can Series LLC have different owners? ›
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.
What is the best state to start a Series LLC? ›
Delaware is a popular state of domicile for those interested in creating a Series LLC, but there are other options to choose from. Here's the why the Delaware Series LLC is repeatedly favored by individuals across the country and around the world.
What is the difference between a series LLC and a subsidiary? ›
The parent and its subsidiaries are each legally distinct entities that can sue or be sued in their own names, own their own assets, and so on. A series LLC collapses the org chart from multiple entities to just one LLC with different cells (called “series”).
Can I open a bank account with a series LLC? ›
If you'd like to have individual bank accounts for each series, you can either (1) open multiple LLC accounts (using the LLC's EIN and Certificate of Formation) and designate each account for a specific series; or (2) obtain an EIN for each series and open the account in the name of series.
What is the difference between a holding LLC and a series LLC? ›
A holding company doesn't actively operate businesses—it simply exists and owns. As a series LLC, the holding company would own all of the individual series beneath its umbrella. Real estate investors with multiple properties sometimes form series LLCs to isolate liability.
What is the difference between LLC types? ›
A single-member LLC (SMLLC) is an LLC owned by one member. It's also called a “disregarded entity” by the IRS because, similar to a sole proprietorship, the entity is considered to be the same as its owner for tax purposes. A multi-member LLC (MMLLC) has more than one member and is similar to a partnership.
What is the best classification for an LLC? ›
A single-member LLC is treated as a sole proprietorship and classified as a “disregarded entity” by the IRS, while a multi-member LLC is taxed as a partnership. Either as a sole proprietorship or a partnership, LLCs are treated as a “pass-through” entity unless they choose to be taxed as a C corporation.
Do series LLCs need separate bank accounts? ›
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.
