Series LLC

Series LLC

For individuals with multiple properties or businesses, an alternative to creating multiple limited liability companies (LLC) is to form a series LLC. This special form of LLC, first developed by Delaware, contains many benefits, but is also filled with limitations that business owners should be aware of.

What is a Series LLC?

A series LLC is so named because it is one LLC, composed of individual series of membership interests. So, for example, each business that an individual owns would be its own separate series within the LLC. In the creation of a Delaware series LLC, the certificate of formation must note that the LLC is divided into distinct series and that there are limitations on the liabilities of each series. Importantly, a series can be added or eliminated simply by amending the LLC operating agreement.

Aside from not having to go through the trouble of forming multiple LLCs, a series LLC is beneficial because each series is effectively treated as a separate entity. Delaware law provides that the debts, liabilities, obligations and expenses incurred by each series are enforceable only against the assets of such series, and not against the assets of the LLC generally or any other series. In other words, if one series fails, it will not affect any of the other series or the LLC as a whole. Another benefit is that the series LLC is assessed only one annual franchise tax fee, which is $300. This creates significant cost savings over forming an LLC for each property or business.

Issues

The series LLC is a recent creation and most banks cannot accommodate this type of business structure. This is important because it is critical that the assets of each series be kept separate from other series in order to keep the legal distinction of each series. Further, this type of LLC may be unfamiliar to accountants and tax professionals, meaning they may be unable to provide tax and other advice. Another factor making it difficult to provide advice is that many issues related to taxation of series LLCs have not been resolved, or even raised, yet.

Along those same lines, many legal issues that may arise in regards to series LLCs are novel because of how new these types of LLCs are. As a result of this, it is difficult, if not impossible, to predict how these issues will be resolved when presented to the court for the first time. The lack of predictability can be a major cause for concern for business owners and makes forming multiple traditional LLCs a more attractive option.

Finally, only a few states have adopted laws permitting series LLCs and, as a result, it is possible that other jurisdictions will not recognize the legal separation that these LLCs provide. This may be true even if the series LLC is properly structured and operated.

Help with Business Formation

Whether you are interested in forming a traditional or series LLC, it is important to obtain the help of an experienced attorney. By properly forming your LLC at the outset, you will increase the chance of success for your business. The attorneys at the Royse Law Firm can help with all aspects of the formation and operation of your LLC. If you have any questions, contact us today.

Disclaimer: This blog and website are public sources of general information concerning our firm and its lawyers, as well as the information presented. They are intended, but not promised or guaranteed, to be correct, complete, and up-to-date as of the date posted. This blog and website are not intended to be, and are not, sources of legal opinion or advice. The materials, information, and communications on this blog and website do not apply to any particular person, entity, or situation, and do not apply to you or to your specific situation. You will need to consult with an attorney and/or other appropriate professional about your specific situation. Thank you.
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Roger Royse
rroyse@rroyselaw.com

Roger Royse, the founder of the Royse Law Firm, works with companies ranging from newly formed tech startups to publicly traded multinationals in a variety of industries. Roger regularly advises on complex tax structuring, high stakes business negotiations and large international financial transactions. Practicing business and tax law since 1984, Roger’s background includes work with prominent San Francisco Bay area law firms, as well as Milbank, Tweed, Hadley and McCloy in New York City.
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