A series LLC is a legal entity that provides the liability protection and tax benefits of a limited liability company (LLC) while also allowing you to divide your business into different series.
The series structure is an organizational form that’s become increasingly popular in recent years because it can help mitigate risk. This article will explain a series LLC, when you might want to establish one, and how to form one.
What is a Series LLC?
It is a limited liability company (LLC) that allows you to organize your business into multiple legal entities. Each series within the series LLC is a separate legal entity with its assets, liabilities, and operations.
Because each series has its corporate existence, it can be treated as if it were its stand-alone business entity.
This means that creditors cannot reach across and grab assets from one series to satisfy debts owed by another or the leading company itself.
States permitting series LLCs
The Series LLC is a relatively new form of business organization. The first state to adopt it was Delaware in 1996; since then, other states have followed suit.
Currently, 30 states permit series LLCs: Arizona, Delaware, Illinois, Iowa (limited), Kansas (fixed), Maine (minor), Missouri (tiny), Nebraska (limited), Nevada (general), Oklahoma, South Dakota, Texas, and Wyoming.
Many states have adopted the Revised Uniform Limited Liability Company Act (RULLCA) as an alternative to creating their version of a series LLC.
If you live in these states or plan on forming an out-of-state company with assets within its borders, you may consider starting a RULLCA instead of getting approval from each state.
The RULLCA allows you to form a limited liability company that can be organized in any state. You can also choose which state’s law will govern your business entity and its relationships with other parties.
Many states have used the Revised Uniform Limited Liability Company Act (RULLCA) instead of making their version of a series LLC.
How to form a series LLC and develop or establish a series
To create a series, you must apply with the state. In some states, this can be done online; in others, it involves mailing or faxing documents to the appropriate agency.
Once the state accepts and approves your application, you will receive a certificate of formation for each series within your LLC. If you want to add more series in the future, you’ll need to file an amendment to your existing certificate.
If this doesn’t sound like something that’s going to happen often, consider adding language about creating new entities into your operating agreement instead, it’ll save time and hassle later on.
Reasons for forming a Series LLC
The main reason to form a series LLC is to reduce liability. A Series LLC is a corporate entity that allows you to separate your assets into different “series.”
Each series can be treated as its own entity, and it does not have to include all of the same members as other series within the same structure.
The benefit here is that if one series goes bankrupt or causes harm to someone else, it will not affect any other part of your business or personal life.
You can think about this as being similar in concept to how corporations are set up so that each subsidiary has its board and officers. Still, all companies share common ownership interests in their parent corporation’s stock.
Another reason people choose this organizational structure is that it provides flexibility. Before making changes within your LLCs, you don’t need approval from anyone else.
The most common reason to form an LLC is to protect your assets from possible business-related liabilities.
This is especially important if you own multiple businesses and have some degree of control over them. Still, it can also be beneficial if you have other types of personal property, such as investment properties.
Risks of operating a Series LLC
The risks of operating a Series LLC are similar to those associated with running any business, and you may incur losses or have assets seized or liquidated by creditors.
In addition, you could be sued personally for damages caused by your company’s operations even if you didn’t know about them or participated in them.
The risk of lost income is another potential problem arising from operating a Series LLC. If one series fails to generate enough revenue to support itself financially, this could cause the entire LLC structure to collapse under its weight.
The possibility of lawsuits is another risk associated with operating a Series LLC. If your company is sued, the plaintiff may be able to go after all of your assets–even those in other states or countries.
You could lose everything you own if one series fails to generate enough revenue to support itself financially.
The possibility of lawsuits is another risk associated with operating a Series LLC. If your company is sued, the plaintiff may be able to go after all of your assets, even those in other states or countries.
What are the factors to consider before forming a Series LLC?
Before you form a Series LLC, it’s essential to consider the following: You must have a genuine reason for creating a Series LLC. The Series LLC is not a panacea and may not be the most appropriate structure for your business.
It is essential to understand that while it offers many benefits, some drawbacks must be considered before making any decisions about forming one. The Series LLC may not be suitable for every investor in your business.
While some investors may find great value in the protections offered by this entity structure, others will likely prefer other types of investments because they do not want their assets protected from creditors’ claims.
The Series LLC is not a simple form of business structure. A Series LLC is not a stand-alone entity and cannot be formed by simply filing Articles of Organization with your state’s secretary of state office.
And, once it’s been registered with the IRS, each series within the LLC will have its tax identification number (called an EIN); this can make bookkeeping more complicated than if all businesses were under one umbrella corporation.
Conclusion
The Series LLC is an excellent option for entrepreneurs who want to protect their business and personal assets.
It’s important to remember that this is not an investment vehicle but rather an organizational structure that helps you manage the risks associated with your business.