A series LLC is a type of limited liability company that offers flexibility and asset protection for business owners who intend to have several separate and distinct legal business entities. Each series acts as its own entity and can make contracts, hold assets, including real estate, grant securities, sue and be sued, conduct business, and exercise the powers of an LLC. If you're considering starting a business that may have multiple entities or locations, you may want to consider a series LLC. For example, real estate investors could form a series LLC and put each property in a separate series LLC.
Here are four reasons why a series LLC may be right for you.
A series LLC can have one or more "series" of members, each of which has its own assets and liabilities.
A series LLC allows for the creation of separate "series" within the company, each of which has its own assets and liabilities. The main LLC Operating Agreement must provide for the establishment of series LLCs. The assets for each series are accounted for separately from the assets of the other series and the LLC. Each series may work cooperatively with each other, contract with each other, or choose to be treated as a single business. If you're considering starting a business with multiple separate entities or locations, a series LLC may be a good option for you.
A series LLC offers liability protection to its members.
This structure can be beneficial for businesses that have multiple activities, products, or locations. This structure allows members to shield their assets from the debts and liabilities incurred by other series. This means that if one business in the LLC is sued, the other businesses and their members will not be held liable. Each series LLC has its own Operating Agreement to outline the powers, responsibilities, and limitations on liabilities of each separate LLC.
A series LLC offers flexibility to its members.
A series LLC can provide flexibility in how the company is managed and operated. This type of LLC is a good fit for businesses that have multiple owners or members of different businesses. Each series is a separate legal entity. The Operating Agreement will list the names of the members and managers of each series LLC.
It also gives members the ability to operate each series as a separate business, with its own management and financial structure. For these reasons, series LLCs are often used by businesses with multiple lines of operation or locations. The series Operating Agreement will list the specific business purpose for each series LLC.
Forming a series LLC may be more cost-effective if you plan to have multiple LLCs.
Forming a series LLC involves filing Articles of Organization with the state as a series LLC. The series LLC election should be made during the initial filing of the articles of organization. To create each series, a Certificate of Designation and the required fee must also be filed with the State. However, in Illinois, an LLC that is not originally designated as a “series” LLC may establish the authority to issue series LLCs by filing Form LLC-5.25, Articles of Amendment, and paying the additional fee. While forming a series LLC is more expensive initially, it can be more cost-effective over time than forming multiple LLCs. If you plan to have three or more LLCs, then the initial startup costs and renewals will be less expensive after the first year’s renewal than three or more separate LLCs.
At the time of this article, the initial cost to file a series LLC is $400. To file the Certificate of Designation for each series is $50. For our example, the total initial filing fee for the LLC and two series LLCs would be $500.
The initial cost for a single LLC is $150. If you file three separate LLCs, the initial filing fees would total $450. The annual report filing fee for a single LLC is $75, while the cost of filing each series is $50. The annual report filing fee for three separate LLCs would be $225, while the annual report filing fee for the master LLC and the two series would be $175.
The LLC and the series LLCs are all renewed in the same form at the same time each year. This makes tracking the multiple entities slightly easier than separate LLCs filed at separate times of the year.
The series will share the same registered agent and registered office as master LLC. As long as the LLC is in good standing, the series LLC(s) are also considered to be in good standing.
Some potential disadvantages and limitations.
As with any new business structure, there are potential drawbacks of series LLCs that you should consider before making any decisions about your business operations.
Each business in the LLC will need to keep its own financial records and file its own tax return. It is suggested that the LLC and each series LLC have their own EIN. There also must be separate corporate records to support each series’ independence from the others. This increases the complexity and amount of work necessary to maintain their individual autonomy.
In Illinois, each series must be named after the main LLC and include its name in the series name. For example, Main Business LLC, for the principal LLC. The series LLCs would then be named, “Main Business LLC, Series I,” and “Main Business LLC, Series II.” Or “Main Business LLC, Washington Street Property,” and “Main Business LLC, 123 Main Street.”
Series LLCs are relatively new and may not be available in all states. Illinois recognizes series LLCs, but if you also plan to do business in another state, you should check the laws of that state to know if they permit series LLCs. If that state does not permit series LLCs, they may treat the series LLCs as one LLC rather than separate, series LLCs. This could have implications for liability protections as well as taxes.
Before forming a series LLC, it is important to understand the pros and cons. Consult with a knowledgeable attorney to help you make the best decision for your business.