What is a Series LLC?
A Series LLC is a relatively new type of limited liability company consisting of a single LLC with multiple divisions, referred to as series. Keep reading to learn if the Series LLC structure is right for your business.
What is a Series LLC?
As a business entity, Series LLCs were first established in Delaware in 1996. A single LLC series has its own business objectives, assets, and limited liability, separating them from the parent organization and other divisions.
A Series LLC is a popular structure because of its ability to protect business interests and assets in a way that’s similar to forming separate LLC entities. Each series operates individually, with its own name, bank account, and records.
The Series LLC structure is similar to a corporation with any number of subsidiaries. However, the difference is that a Series LLC entity can form separate entities without the cost of starting from scratch.
Which States Recognize Series LLCs?
The biggest downside to Series LLCs is that they are only available in certain states. Currently, the following states recognize the entity type:
- Washington DC
*California does not form domestic Series LLCs, but does recognize foreign ones.
What Are the Advantages and Disadvantages of Starting a Series LLC?
As with any entity structure, benefits and risks are associated with forming and maintaining a Series LLC. It’s essential to weigh the pros and cons prior to utilizing the entity structure to make the best decision for the future of your business.
One of the most significant advantages of a Series LLC is that legal action taken against a single series will not affect the parent company or other divisions. This means assets from the primary LLC or other series are protected. In addition to that, Series LLC investors can evaluate potential return and risk to manage wealth between investments accordingly.
Another benefit of the Series LLC entity is that the child divisions do not have to file taxes. The parent LLC files taxes on behalf of the entire series. While an annual report needs to be filed for each series, it’s often the case that filing fees are reduced for the child series.
As for the risks of starting and operating a Series LLC, one of the biggest is the complexity of the structure paired with its age. There have not been many court cases to outline different legal situations, and it’s not clear as to whether individual divisions are protected in federal bankruptcy court. While the Uniform Protected Series Act provides protection, the measure has not to be adopted in all states that allow the formation of Series LLCs. There’s also the matter of companies not reaping the benefits of the liability protection if regulations are not followed to a tee.
How Do You Form a Series LLC?
The process of forming a Series LLC is similar to starting a traditional limited liability company, but the process isn’t identical. To start, in most instances, the parent company’s name will need to include the LLC designation, but the naming regulations for individual series vary from state to state.
Series LLCs are then officially formed by filing articles of organization with the domicile’s secretary of state. Typically, the articles of organization include the LLC’s name, registered agent information, address, and organizer’s signature.
When it comes to establishing individual series, states have different requirements. For example, some states, like Illinois, require each series to register separately, while other states allow series to form by amending the operating agreement. If series are formed by amending the operating agreement, the state business registration agency needs to be notified.
In addition to the pros, cons, and formation information, there are other factors to consider with the Series LLC structure. If you’re looking into forming a Series LLC, consider the following:
- Series LLCs are required to appoint and maintain a registered agent.
- Registered agents receive legal notices on the business’s behalf.
- Registered agents must be available during the typical business day at a publicly listed address.
- Series LLCs often benefit from hiring a registered agent service provider for privacy and reliability
- State requirements vary, so some states allow for a single registered agent, while others require separate registered agents for each series.
- Series LLC organizers need to decide how the parent business and series will be managed — either member-managed or manager-managed.
- Different series can have different managers and members.
Complete Entity Management Solutions by Harbor Compliance
Harbor Compliance is a leading provider of compliance solutions nationwide. Whether you’re looking to form a Series LLC, appoint a registered agent, or you are looking to simplify your entity management, we’re here to help. Contact us today to learn more.