What are the pros and cons of a series LLC?
What Are the Pros and Cons of Forming a Delaware Series LLC? While it is a flexible entity that offers several benefits, there are some drawbacks associated with it. Pros: Low start-up cost: Only one LLC needs to be formed with the state of Delaware. The series within the LLC are then formed internally via the series LLC's Operating Agreement.
How to structure a series LLC?
SET UP YOUR SERIES LLC
- CHOOSE A REGISTERED AGENT A registered agent is a person or business that sends and receives legal papers on your behalf. ...
- DOCUMENT YOUR SERIES LLC Some states require business owners to give details about their series LLC on their articles of organization and some state’s do not. ...
- CREATE A SERIES LLC OPERATING AGREEMENT
What are states permitting series LLCs?
The Series LLC was initially pioneered by Delaware, a famously pro-business state. Even today, Delaware remains a popular state for entity formation. Other states followed in Delaware's footsteps, and today you can get a Series LLC in Texas, Tennessee, Utah, Nevada, Illinois, Oklahoma, and Iowa.
How to set up the parent of a LLC series?
Name the parent LLC in a way that distinguishes it from the child series. Include the full name of the parent LLC in the name of each child series. The name of the child series should include the name of the assets it holds.
What is the benefit of a series LLC?
With a Series LLC, a holding company can hold all individual businesses under a single umbrella while mitigating the risk of one business' assets being used to satisfy the debts or liabilities incurred by another of its businesses.
What is the difference between an LLC and a series LLC?
What Is a Series LLC? A Series LLC gives you all the same benefits as a regular LLC, but it serves as a sort of "umbrella company" with additional flexibility and protections for multiple companies or lines of business within your overall operation.
How are series LLCs taxed?
A series LLC is taxed just like a traditional LLC, on a single federal tax return and as a pass-through entity. Because a series LLC is a state business designation, state taxes will vary from state to state. With the help of Incfile's Accounting and Bookkeeping service, navigating your series LLC taxes is simple.
What is an example of a series LLC?
This uniformity of ownership of each protected series causes the profits and losses of each protected series to flow to members directly and not through the mothership LLC. To use a simple example, ABC Capital LLC can be a single-member Delaware Series LLC with Abel Adams as a member.
Are series LLCs worth it?
Benefits of Series LLC's Reduced startup cost. Only one filing fee is required, and an attorney can set up the parent and cells at less cost than setting up multiple LLCs. There are still some additional documents that must be filed for the individual LLCs in the series. Protection of Assets.
Does each Series LLC need its own EIN?
Organizations Other Than the IRS May Require Separate EINs It's not just the IRS that may require you to have different EINs for each business under your Series LLC. You will be required to have a separate business bank account for each business and banks typically require an EIN to open a business account.
Which states do not recognize series LLC?
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.
Do I have to file a separate tax return for each series?
Each series (unless disregarded) and series organization (if recognized as an entity for tax purposes and not disregarded) would be required to file the appropriate income tax returns.
Is a series LLC the same as a holding company?
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 states have a Series LLC?
The series LLC is different from a traditional Limited Liability Company (LLC). In fact, the series LLC is not not available in all states and has only been adopted in Delaware, Nevada, Illinois, Iowa, Oklahoma, Tennessee, Texas and Utah.
How do you name a Series LLC?
The name of the series must begin or end with the name of the parent LLC, including any word or abbreviation required by the applicable LLC name statute; and. The name of the series must contain the phrase “Protected Series” or “protected series” or the abbreviation “P.S.” or “PS.”
How do I set up a serial LLC?
SET UP YOUR SERIES LLCSTEP 1: NAME YOUR SERIES LLC. Series LLC naming rules vary from state to state. ... STEP 2: CHOOSE A REGISTERED AGENT. A registered agent is a person or business that sends and receives legal papers on your behalf. ... STEP 3: DOCUMENT YOUR SERIES LLC.STEP 4: CREATE A SERIES LLC OPERATING AGREEMENT.
What states have a series LLC?
The series LLC is different from a traditional Limited Liability Company (LLC). In fact, the series LLC is not not available in all states and has only been adopted in Delaware, Nevada, Illinois, Iowa, Oklahoma, Tennessee, Texas and Utah.
Is a series LLC the same as a holding company?
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 a multi member LLC and a single member LLC?
Single-member LLC Ownership – A Single-member LLC has one owner (member) who has full control over the company. The LLC is its own legal entity, independent of its owner. Multi-member LLC Ownership – A Multi-member LLC has two or more owners (members) that share control of the company.
Is a LLC better than an S corporation?
LLCs are common because they provide the liability that's similar to a corporation, but they are easier to establish and with fewer regulatory requirements than other types of corporations. LLCs allow for personal liability protection, which means creditors cannot go after the owner's personal assets.
What is series LLC?
A series LLC is a form of limited liability company with a unique structure. The series LLC consists of a master LLC and the individual series that branch off from it.
How does a Texas series LLC work?
A Texas series LLC works by separating the assets and operations of individual series LLCs under the umbrella of a master LLC. Each individual series is protected from losses suffered by the other series LLCs and the master LLC.
What is a master LLC?
A master LLC, also called a parent LLC, is the main LLC that the individual series are connected to. The master LLC is legally protected from liabilities and losses incurred by the series. The master LLC files taxes on behalf of the full series.
Why is LLC a good investment?
The series LLC is a favorite with real estate investors because it allows investors to separate (and protect) their individual properties.
What is the Uniform Protected Series Act?
Recently, lawmakers created the Uniform Protected Series Act which, once adopted by the individual states, will help reduce the complexity and risk of the series LLC while encouraging its more widespread use.
How much does it cost to form a series LLC?
The cost of forming a Series LLC can vary between $50-$1000. Choose your state from the list below for the exact fees for forming a series LLC.
How much is the annual tax for a series LLC?
Each individual series is required to pay an $800 annual tax. A series LLC will not be granted the individual protection by California courts that are given by states that honor the series LLC structure.
What is a Series LLC?
An LLC ( limited liability company) is a form of business ownership recognized by all U.S. states . An LLC is not a corporation, but it does provide the same liability protection as a corporation since it is separate from its owners (called "members" ). An LLC with several members may be taxed as a partnership, with the profits passing through to the partners/members according to their share of the business. LLC's are popular because they are simpler to form than a corporation while providing comparable liability protection. 1
Why do real estate investors use series LLC?
Real estate investors with multiple properties use a series LLC to keep the liability for each one separate from the others. 3
What is SLLC in business?
A few states require a similar form called a Certificate of Organization. The series LLC (SLLC) includes a master or umbrella LLC and other LLCs which are separated from each other for liability purposes (called "cells.". Each cell LLC has assets separate from the others, while the master LLC controls all the LLCs in the series.
How to form a series LLC in Illinois?
To form a series LLC in Illinois, you must use a different form for the Articles of Organization, and the filing fee is more than for a single LLC. After the original Articles of Organization are filed, each individual LLC is formed using a Certificate of Designation for each LLC within the series. 3
How many state registrations are required for an LLC?
Only one state registration. Only the parent LLC must be registered with the state, which means fewer legal costs and registration fees. It also means only one annual or biennial fee is needed for the series. This assumes that all LLCs in the series are registered in the same state.
How to register a series LLC?
To register a series LLC in your state, go to the website of the state business division (usually part of the secretary of state or secretary of commonwealth website) and look for LLC registration. The Series LLC option should be listed if it is allowed in the state.
Which state allowed LLCs?
Delaware was the first state to allow series LLCs, and most of the others have followed its model. Delaware has a registered series LLC entity which can be formed by providing the name of one of the LLCs in the series and the name of the registered series. 4 .
How would a series LLC be used?
How would a series LLC be used? Let's take a privately held company that’s a large volume manufacturer. It has its own retail stores to sell its goods and has its own fleet of trucks to provide transportation from the warehouses it owns to stores. If all operations were in a single entity, any liability arising from a trucking accident would expose all the company’s assets to potential liability.
What is series LLC?
A series LLC is essential ly a group of separate LLCs contained within one master LLC entity. The Delaware Code describes it as follows: "A limited liability company agreement may establish or provide for the establishment of 1 or more designated series of members, managers, limited liability company interests or assets.
Why is the series LLC so slow?
Since 1996, only 7 other states have adopted statutes permitting the formation of a series LLC. The reason for its slow acceptance is for much the same as it was for the regular LLC: the entity type is new and tax regulations and case law decisions interpreting the series LLC statutes have lagged behind the enabling legislation. This uncertainty has discouraged widespread acceptance of the new entity type. Once the IRS adopted specific regulations for the tax treatment for an LLC, its popularity skyrocketed and is now a popular entity type in all 50 states.
What is a Delaware series LLC?
A Delaware series LLC has "the power and capacity to, in its own name, contract, hold title to assets (including real, personal and intangible property), grant liens and security interests, and sue and be sued." (Title 6 §18-215 (c))
What is the governing document for a series LLC?
The main governing document is always the written operating agreement describing the master LLC and the characteristics of each series, but this is not filed with any government agency and is not a public record.
How to confirm ownership of real property by series?
To confirm ownership of real property by a specific series, must a deed specify the series by name or is it sufficient for title to be in the name of the master LLC only and have the books and records of the LLC specify the series that owns the property?
What is the purpose of a series?
Each series may have its own completely diverse business purpose or investment objective. One series could own one or more real estate assets while another may operate a retail business while a third series may have a portfolio of passive investments such as stocks and bonds. The only prohibited business purposes are typically for banking or insurance company operations. Additional series may be added from time to time to accomplish different objectives, each with its own set of members or classes of members and assets.
What is a Series LLC?
One type of legal entity, which even some business attorneys find challenging to handle, is the series limited liability company. And, that’s understandable. While the concept of a series LLC may be fairly easily understood, forming one is not simple. Adding to the challenge is the fact that series LLCs are relatively new structures, so the sample forms and information available about them online is limited compared to other entity types, such as regular limited liability companies, corporations and even limited partnerships.
Which states recognize series LLCs?
States that recognize the existence of series LLCs but don’t provide for limited liability protection for each series from each other and the parent LLC are Minnesota , North Dakota and Wisconsin. These states use the word “series” differently from the states (e.g., Texas, Delaware, Nevada, etc.) listed above.
What is an operating agreement?
An Operating Agreement is one additional item to show a court that you took seriously the process of forming and maintaining the entity if ever someone were to sue your LLC and try to “piece the veil” of the liability protection provided by the LLC. A series LLC should definitely have an Operating Agreement.
What is the protected series?
The Limited Liability Company Protected Series Act, which is being created by the Uniform Law Commission, requires that series begin or end with the name of the parent LLC and that each series name contains the words, “Protected Series” or just “P.S.”.
What are the laws for limited liability companies?
Most state limited liability company laws are based on the model put forth by the Uniform Law Commission. The Revised Uniform Limited Liability Company Act (RULLCA) was promulgated (that’s the fancy lawyer term for creating and promoting something) in 2006. Many states have adopted RULLCA and, since RULLCA does not authorize series LLCs, states need to adopt their own series LLC laws by separate legislation. That may change soon with the adoption of the Limited Liability Company Protected Series Act, which is being created by the Uniform Law Commission (as of July 2017). Perhaps we will see more widespread adoption of series LLC statutes once the Limited Liability Company Protected Series Act is introduced.
Which states have series LLC laws?
It took eight more years until the next state – Oklahoma – adopted the series LLC. Since then, adoption has sped up a bit, although as of 2017, only a minority of states have series LLC laws. Adoption has been a little slower than adoption of the LLC legislation originally (Wyoming passed the first LLC statute in 1977 and by the end of 1996 all 50 states had LLC legislation).
Which state was the first to allow LLCs?
Not every state provides for the formation of series limited liability companies. As mentioned earlier, Delaware was the first state to authorize the formation of series LLCs. That was in 1996. As of July 2017, the following 13 states have statutes authorizing series limited liability companies:
Which state was the first to have an LLC?
Delaware was actually the first state to try to find a solution to this problem and pass the first Series LLC statute in 1996. Wisconsin followed shortly thereafter with their own statue in 2001.
Can you have multiple rental properties in one LLC?
The problem is that when investors have multiple rental properties it can be risky to put all of our assets in one LLC or “bucket”, but on the other hand, it can be expensive and cumbersome to set up an LLC for each property, asset, or business venture.
Is a series LLC good for investors?
In the end, if properly created and maintained, the Series LLC may be an extremely useful tool for investors with multiple investment properties.
Can an LLC have its own property?
The end result is that each series of the Parent LLC can have its own specified property, assets, investment objective, or business purpose; such that the debts, obligations, and liabilities of each series are only enforceable against the assets of that Series; not against the assets of the Parent LLC or any of the other series.
Is a series LLC effective in Oklahoma?
The problem is that Series LLCs are only effective in the State where they are authorized AND the real estate is located. For example, if I have 3 rental properties in Oklahoma, I can establish an Oklahoma Series LLC because that state has a Series LLC statute.
What is series LLC?
The series LLC is essential ly a single umbrella entity that has the ability to partition its assets and liabilities among various sub-LLCs or series . Each sub-LLC may have different assets, economic structures, members, and managers.
Which state was the first to have a series LLC?
Complex business arrangements can sometimes be better managed by the use of a series LLC. As stated above, the first state to enact series LLCs was Delaware. The Delaware statute protects the assets of one series from the liabilities of another series.
Can you form a series LLC in Delaware?
The fact that a state has not adopted a series LLC statute does not prohibit one from forming a Delaware series LLC and having it registered to do business in the state, though there may be complications in doing so from state to state.
Can a series LLC file one tax return?
Some practitioners have expressed concerns that the Internal Revenue Service will not permit the series LLC to file just one tax return for all the series combined. The California Franchise Tax Board’s position is that each series in a Delaware series LLC is considered a separate LLC, must file its own Form 568 Liability Company Return of Income and pay its own separate LLC annual tax and fee if it is registered or doing business in California.
Is Delaware series LLC a risk?
Like LLCs in general, the Delaware series LLCs are not without certain risks. There are numerous unresolved issues regarding the series LLC, including, without limitation, tax issues and creditor/debtor issues (i.e., the interplay between the Federal Bankruptcy Code and state series LLC law.
What is a Series LLC?
The Series LLC was first introduced by Delaware in 1996. The concept was borrowed from Delaware’s statutory trust law, which was particularly popular with mutual funds. Under the statutory trust law, one investment company could be formed as a trust with separate series. Each series could have its own portfolio with different investors, investment strategies, and so on. When the Series LLC became an option it allowed mutual funds to use the LLC—a more flexible vehicle than the statutory trust. Although that’s how it began, a Series LLC can be used for many purposes beyond setting up mutual funds.
What are the main reasons for forming a Series LLC?
There are a few common reasons why organizations choose to form a Series LLC. These include the following:
What are the requirements for a series LLC?
Again, you have to check the specific statute but in general (1) the formation document must provide notice of the limitation of liability of the series the LLC may establish , (2) the operating agreement must state that the assets associated with a series are the assets of that series only, and (3) the books and records of the Series LLC and each series must account for the assets associated with each series separately from the assets associated with the Series LLC itself or any other series.
How to form a series LLC?
No filing is required. In other states a series is formed by filing a document, called, for example, a certificate of designation or a certificate of registration, with the state filing office. Delaware takes a third approach. It has two types of series—“protected series” which are established in the LLC agreement with no filing required, and “registered series” which require the filing of a certificate of registration with the Delaware Secretary of State.
What are the advantages of LLC?
One of the major advantages of an LLC over other entity choices is that it is so flexible—giving the members many options in deciding how to split the management and financial rights, with few statutory mandates. That flexibility exists in the Series LLC and in each series.
What states can you form a series LLC?
Not all states do. The jurisdictions that do authorize Series LLC formation include the following: Alabama. Arkansas.
Can a series LLC be formed in another state?
Additionally, California and some other states do not allow Series LLC formation but do recognize Series LLCs formed in another state. Such foreign LLCs can register and do business within these states. It is also important to be aware of some states, like North Dakota and Wisconsin, that have “false series” laws.
What is the purpose of LLC?
If your state allows for a general purpose statement, the following are some examples of what this may look like: “The purpose of Business Name, LLC, is to operate and conduct all business activities legally permitted in the state of A.”.
Why does an LLC need a purpose statement?
Including a purpose statement in your LLC formation documents is important, particularly if legal action is brought against your business. At this point, a court may examine that statement to determine whether you, as the owner, are personally liable. Courts may determine that a business with an unclear or unstated purpose is merely an alter ego and may seek to enforce monetary judgments against the business owner as an individual.
What is purpose statement in LLC?
An LLC purpose statement describes the reason for forming the Limited Liability Company. This description typically only needs to be a sentence or two. It is important to note that a purpose statement is legally distinct from your company’s vision or mission statement.
Why is it important to exercise care when declaring a business purpose?
Another important reason to exercise care when declaring a business purpose is that your company’s future existence may depend on it. An LLC member could petition the court to dissolve the company if it becomes unlikely that the LLC can reasonably fulfill the stated purpose.
Do you need a general purpose statement in an Articles of Organization?
In most states, you only need a general purpose statement in the Articles of Organization. In contrast, other states require a specific purpose about the primary business activities your LLC intends to conduct.
Is a general purpose statement sufficient?
However, if you are creating a Professional Limited Liability Company (PLLC) (which is basically an LLC for businesses that require a state license such as an accountant, locksmith, etc.), a more specific purpose statement explaining the type of professional services the PLLC will provide will be needed. Some examples of general and specific statements are below.
The Evolution of Limited Liability Entities
Understanding The Series LLC Structure
How to Form A Series LLC
A Different Business Purpose For Each Series
- 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 busi...
Tax Treatment Currently Unsettled
Possible Advantages of The Series LLC
Potential Risks and Unresolved Issues
Conclusion