Overview:
The Series LLC is a fairly new type of LLC that has been around since 2009. Unlike a traditional LLC, the Series LLC allows for the sorting of individual properties into separate compartments that are isolated and insulated from each other. This type of LLC is especially useful for dealing with real estate investors and other clients dealing with multiple assets.
What is a Series LLC?
A series LLC allows for multiple “cells” to be set up within a single LLC name. Each sub-company can open open it’s own bank account, obtain it’s own EIN number and file lawsuits. Each sub-company simply operates under it’s own assumed name using an assumed name certificate filed with the Secretary of State. Although there can be multiple “cells” within the Series LLC, it still functions as single legal entity for tax and filing purposes.
What is the difference between Series LLC and Traditional LLC?
The main difference between a series LLC and a traditional LLC is in terms of liability and exposure. In a suit filed against a traditional LLC, all assets are available. In a suit filed against a Series LLC, only the assets within the specific “cell” being sued are available. Important point: A series LLC can still own property without a series designation if no specific “cell” is named in the transfer and thus, still available as an asset for suits against the general company.
What should/shouldn’t I transfer into the Series LLC?
Do not put companies that are vastly different in the same Series LLC. Also, do not put a specific LLC in one series that creates a much higher level of liability or potential for legal action than businesses in other series, has a different debt structure (involving development loans, personal guarantees, and the like) than that in other series, receives significantly different tax treatment from other series or is involved in a payment plan with the IRS or serves as a management entity with exposure to the public (tenants, vendors, contractors, and the like) since this function is better placed in a separate LLC altogether.
How do I form a Series LLC?
To create a Series LLC, there must be specific wording in the LLC Certificate of Formation to make it clear there will be sub-companies involved and there will be multiple layers. You can also amend an existing Traditional LLC into a Series LLC by filing a Certificate of Amendment. There are also subsequent documents that will need to be prepared such as the company operating agreement, minutes, etc.) These are all filed through the Secretary of State and should be done through an attorney and not through internet forms/other minimalist filing.
FAQs
The main difference between a series LLC and a traditional LLC is in terms of liability and exposure. In a suit filed against a traditional LLC, all assets are available. In a suit filed against a Series LLC, only the assets within the specific “cell” being sued are available.
What is the difference between a series LLC and a traditional 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. But who uses a Series LLC? One example is rental property owners.
What are the disadvantages of a series LLC? ›
The biggest problem with series LLCs is that many states (including California) don't have series legislation and may choose to ignore the laws of the state where the series was created. That's because you're subject to their rules when doing business in their state.
Is a series LLC better than a single LLC? ›
Key Takeaways. 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 is the benefit of series LLC? ›
Series LLCs are an ideal choice for real estate investors looking for a strong liability shield. There is no minimum or maximum limit on the assets an LLC can hold so investors could potentially keep each property they own in a separate LLC under the parent LLC.
Can you turn a regular LLC into a series LLC? ›
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 need 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.
Does the IRS recognize Series LLC? ›
Federal Taxes as a Series LLC
Currently, the IRS taxes a series LLC as a single entity that files one tax return. Just like a traditional LLC, which is also a pass-through entity, a series LLC has tax advantages that can save you money on your taxes.
Which states do not recognize Series LLC? ›
Alabama, Delaware, the District of Columbia, Illinois, Indiana, Iowa, Kansas, Missouri, Montana, Nevada, North Dakota, Oklahoma, Puerto Rico, Tennessee, Texas, Utah, Wisconsin, and Wyoming all allow some form of the series LLC. California does not form domestic series LLCs, but a series LLC formed elsewhere can ...
Can a 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.
A major disadvantage of an LLC is that owners may pay more taxes. When setting up as a pass-through to owners, they are subject to self-employment tax. Self-employment tax ends up higher compared to being taxed as an employee.
Is there a downside to having multiple LLCs? ›
Burden of Maintaining Separate Businesses
If you operate multiple separate LLCs, you take on maintenance responsibilities for each one separately. That means, if you own four LLCs, you must: Go through the formation process four times. Hire a registered agent for all four LLCs.
Can a series LLC be member-managed? ›
Also, depending on the management structure, an LLC can be member-managed or manager-managed. Depending on the relation to the formation state, LLCs can be domestic or foreign. Foreign LLCs are legal entities incorporated in one state (e.g., Delaware) and authorized to do business in another one (e.g., Georgia).
What is the disadvantage 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 a series LLC file separate tax returns? ›
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.
Does each series LLC need its own bank account? ›
Each series can have a separate bank account, but it is not required.
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.
How is a series LLC taxed? ›
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. All income from the LLCs in the series will be included on the Schedule E portion of the owner's personal tax return.
What type of LLC is most common? ›
Single-member LLCs are recognized in every state and are the most common type of LLC. Here, the word "member" is a stand-in for "owner." Single-member LLCs have an individual owner.
Can a series LLC own another LLC? ›
Yes, an LLC can own 50% of another LLC - it can also own 100% or 1%. This is referred to as a parent or holding company which is designed to invest in other companies.
