What is a Series Limited Liability Company (LLC)

A series limited liability company LLC is a type of limited liability company (“LLC”) in which the articles of formation expressly permit the unlimited segregation of membership interests, assets, and operations into independent series. Each series operates as a separate entity, with its own name, bank account, and books and records. Each series of an LLC may have a different set of members and managers. The rights and obligations of these members and managers vary depending on the series. Each series has the ability to enter into contracts, sue or be sued, and own real and personal property.

The most important feature of a Series Limited Liability Company LLC is the liability protection provided to each series. Assets owned by one series are protected from the liabilities of other series within the same series Limited Liability Company LLC. A series LLC is conceptually similar to a corporation with multiple subsidiaries. The series Limited Liability Company LLC concept, on the other hand, is intended to segregate risk within separate entities without incurring the cost of establishing new entities.

States Permitting Series Limited Liability Company LLC

The state established the LLC series Limited Liability Company. Series LLCs are only permitted in certain states. Delaware was the first state to pass legislation allowing series LLCs to be formed. Illinois, Iowa, Nevada, Oklahoma, Tennessee, Texas, Utah, and Puerto Rico are among the states that have followed suit. Some states, such as California, do not permit the formation of series LLCs under state law; however, series LLCs formed in other states can register with the state and conduct business there.

Forming a Series LLC

A series LLC is formed in the same way that a regular LLC is. In a state where series LLCs are permitted, you must file articles of formation with the appropriate governmental entity. Most states require that the articles of formation specifically state that the LLC is authorized to form series in order to distinguish it from a regular LLC. Following that, you’ll need an operating agreement for the master LLC as well as one for each series you intend to form. When another series is required, a series LLC can create one.

The master LLC operating agreement establishes general guidelines for the series LLC’s overall operations. Similarly, operating agreements for each series establish customised operational rules. One advantage of forming a series LLC is that you only need to file articles of formation once. Following the formation of the initial master LLC, each subsequent series is formed through internal mechanisms outlined in the operating agreements. Typically, this is accomplished by amending the master LLC operating agreement and adding a new series.

Using a Series Limited Liability Company LLC

As a business entity, series LLCs are extremely adaptable and simple to operate. Real estate investors with multiple properties can use the series LLC. Each series isolates and protects its properties from the liabilities of other series’ properties. Companies that have multiple profit centers can use series LLCs to separate and protect each business operation.

It is essential to treat each series as a separate company in order to maintain liability protection for each series. This includes having a separate bank account, keeping separate books and records, signing contracts using the series’ name, documenting all transactions, and keeping adequate capital on hand for business purposes.

Tax Issues

There are some unresolved tax issues with series LLCs, primarily whether each series is taxed as a separate entity. According to the California Franchise Tax Board, each series in a series LLC is a separate entity that must file its own tax return and pay its own LLC annual tax and fee if it is registered to do business in California.

Which states allow the series LLC?

The regulations for the series LLC vary by state, and only 14 states permit them. Recently, lawmakers drafted the Uniform Protected Series Act, which, if adopted by individual states, will help to reduce the complexity and risk of series LLCs while encouraging their wider use.

Currently, the Series LLC is permitted in the following states:

  • Alabama
  • Delaware
  • District of Columbia
  • Illinois
  • Indiana
  • Iowa
  • Kansas
  • Missouri
  • Montana
  • Nevada
  • Oklahoma
  • Tennessee
  • Texas
  • Utah

It is essential to consult with an attorney to ensure that you are operating your series LLC in accordance with your state’s regulations.

What is the difference between an LLC and a Series LLC?

An LLC is a single limited liability company. A series LLC is a limited liability company with unique structure. A series LLC is made up of a master LLC and one or more individual series LLCs that branch off of it. The individual series are shielded from the liabilities and losses incurred by the other individual series and the master LLC.

How much does a Series LLC cost?

The cost of forming a Series LLC can range from $50 to $1,000.

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