Benefits of a Series LLC

A Series LLC is a new form of LLC that may be formed under the laws of some states. It is a master LLC whose organizing document provides for separate sub-units (series), which operate as independent LLCs. California law does not allow for a Series LLC to be formed in California. However, a Series LLC that is formed under the laws of another state may register with the California Secretary of State and transact business in California.

A Series LLC is a regular LLC, but slightly different; it can have an unlimited number of subsidiaries (called Cells), and each subsidiary is treated as a separate structure relating to liability if you set the structure up correctly and run it properly. So far, eight states have Series LLC legislation on the books (Delaware, Illinois, Iowa, Oklahoma, Nevada, Tennessee, Texas and Utah). But even if you don’t live or own property in one of those states, you can still use a Series LLC by qualifying it to do business in the state(s) where you want to operate.

Key Features:

  • Each unit has its own owners (members) and may be managed separately from the master LLC and other units.
  • Each unit must maintain separate books and records.
  • As with a regularly formed LLC, the owners (members) of each unit are not financially responsible for the unit’s debts and obligations.
  • A unit may conduct part of the business of the master LLC, or may conduct a wholly different business.
  • Each unit has its own assets and liabilities. The members of each unit are treated under the laws of the state where the master LLC is formed as owning an interest in only that unit, and have no rights as members of one unit in the assets or income of any other unit.
  • Each unit is liable only for its own debts and obligations. In other words, creditors of one unit may only make claims against the assets of that unit.

There are three main benefits to a Series LLC:

  • Protection:  It’s written into the legislation that creditors on Cell number 1 can’t come after the property in Cell #2 etc. Therefore, if set up properly, you have liability protection between each cell. Under each state’s legislation, you must properly document the creation of each cell. This includes Resolutions at the main LLC level, establishing the Series Cell. It also means each Cell needs to have its own Operating Agreement, designating its own Managers and Members. Each cell needs to keep separate accounting records, get its own Tax ID number from the IRS, and maintain a separate bank account.
  • Cost: Despite the separateness of each series, the Illinois Secretary of State (for example) treats the entire series LLC as one entity. One entity = one filing fee and one annual report. Your reward for all that extra bookkeeping, keeping track of the individual Cells, is a single structure fee, and a single resident agent fee. If your LLC is located in Nevada, you pay the state fees of $325 plus one resident agent fee, no matter how many subsidiaries you have.
  • Ease and Speed of Creation: Once you have the main LLC set up, creating subsidiaries is simple. It’s an internal process that does not require Lawyers or formation agents, just some documentation and a few minutes on the IRS website to get a Tax ID number. Your cost is zero if you do it yourself, and it takes less than an hour.
Written by:
Greg Chenault
TGG Accounting
 
 
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