This guide has been designed to elaborate the concept of series LLC, discuss all the technical aspects associated with the idea of series LLC, and answer the frequently asked questions about series LLCs.
What Is A Series LLC?
A series LLC is a unique structure of limited liability companies where the articles of LLC formation specifically allow for infinite segregation of assets, membership interests, and other operations into an independent series.
Each Series of the Series LLC operates as an independent and separate legal entity with a different and unique name, bank account, and other business records. Similarly, a series LLC can also have different managers and member in each Series.
The rights and obligations of these members and managers differ from Series to Series. Each Series may enter independently into contracts, sue or can be sued, and can hold title to personal and real property.
An essential characteristic of a series LLC is the liability protection that is available to each Series. Assets owned by one Series of LLC 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 many different subsidiaries. However, the Series LLC concept is mainly designed to divide the risk within the separate entities without bearing the cost of setting up new entities.
How To Setup A Series LLC
Like a series LLC makes business more accessible for you, LLC’s formation is an easy process. Here is the formation setup of a series LLC explained in 4 easy steps:
- Name Your Series LLC
Rules of naming a series LLC naming vary from state to state. Make sure to follow your state’s regulations on naming your Series LLC as described on the Secretary of state’s website.
- Choose A Registered Agent
Almost all states require every Series LLC to nominate its registered agent. A registered agent is a business or person responsible for sending and receiving legal paperwork on your behalf. Your registered agent must be a resident of the LLC’s respective state.
- Document Your Series LLC
Some states require your series LLC to provide details about the articles of organization of LLC, and some states don’t need it.
- Create Operating Agreement For Your Series LLC
A series LLC operating agreement is a legal document that defines the ownership structure and roles of all LLC members. A series LLC in every state asks for a very carefully drafted operating agreement to ensure your Series LLC protection.
Series LLC Costs
The fees for a series LLC vary from state to state. For example, in the form of Illinois, there is a fee of $750 for registration of a series LLC. You can find the cost of series LLC formation in your state on your Secretary of state’s website.
Benefits Of A Series LLC
Once your Series LLC is formed, the primary benefit is the protection of your valuable assets. Down below, we have tried to discuss all the possible benefits that a series LLC has to offer.
A Series LLC Protects Your Priceless AssetsAs we have discussed earlier, a series LLC’s structure is designed to isolate your assets. Once your total assets have been separated, there is complete liability protection for each of your assets. Each asset is secured in its own dedicated Series, which functions as an independent LLC.
In business practices, the use of a Series LLC makes it highly impractical to be sued. Even if someone has solid grounds for suing your business, their attorney might not say the same. Why? Here are the reasons:
As a series LLC protects your assets by keeping your name off of the assets; hence you cannot be individually sued. Your LLC can be sued; however, it is highly technical and comes with many legal difficulties.
- Isolated Assets
Series LLCs isolate your assets, thus leaving the only asset vulnerable at a time. Such an asset protection strategy of series LLC protect your assets and leave your assets as something too hard to get. Thus, attorneys don’t like to take such cases where there is no high prize involved.
A Series LLC Offers Tax BenefitsMultiple tax benefits come with the formation of a series LLC. We can write a whole article about how much Uncle Sam is kind on Series LLCs when it comes to taxes, but here are two of the leading tax benefits that come with series LLC:
- Business Taxation Savings
Since the Series LLC is formed and represented only in its home state, if there is no sales tax in the LLC’s home state, there is a big skate to avail on sales tax. A series LLC for rental properties also means no sales tax on rental payments between Series.
One of the most significant advantages is that you don’t physically have to be in the LLC’s ‘home state’ to avail of these benefits. Considering the Texas series, LLC could be more beneficial as it offers an excellent deal via pass-through taxation.
- Simplification Of Tax Returns
Series LLC tax return is a straightforward process as compared to other business entities. Even though you can have many assets and a whole LLC series, you only have to file one tax return for the whole shebang. The parent company is the only one that has to be put on the tax return form, and while you’re paying taxes for all parts of the Series, it is being reported as a single entity.
Drawbacks Of A Series LLC
While a series LLC option has more to offer in benefits, some unavoidable drawbacks come with a series LLC. These include:
- Your state may require a separate registered agent for each LLC in the Series.
- You will need to maintain separate books and bank accounts for each LLC in the Series.
- The cost of formation is usually higher for a series LLC as compared to a regular LLC.
- You will be asked tough bankruptcy questions if you are registering a series LLC.
Frequently Asked Questions
- Do series LLC file separate tax return?
No. As discussed in the article, a very simple and one tax return for whole Series is one of the most significant advantages that a series LLC offers.
- How to get an EIN for a series LLC?
The EIN application procedure for series LLC is just like the EIN registration for regular LLCs.
- How is a restricted LLC different from a series LLC?
A restricted LLC is a legal vehicle created to transfer within a family, and it is not meant for any business transaction.