Series LLC

Written by: Mary Gerardine

Cartoon woman holding LLC Series sign

    Due to the simplicity, protection, and flexibility of the limited liability company (LLC) business structure, some states have begun to adopt the new ”series” form of LLC.

    The Delaware LLC Act first allowed the formation of a separate series within the same LLC. The Delaware Act also dictates that each series may have different members — or the same members with different percentages than in other series apart from the master LLC — thus providing flexibility for projects with multiple investors.

    The states that followed Delaware in embracing the series LLC structure include Nevada, Oklahoma, Iowa, and Illinois. This structure is ideal for certain types of businesses, such as real estate agencies, fast food restaurants, trucking and transport leasing companies, and companies with operational branches that need to improve their liability coverage to better protect one portion of their business activity from another.

     

    What is a Series LLC?

    A series LLC is a specific form of LLC that consists of a master LLC with one or more individual (or child) series LLCs branching off from that parent company. A master LLC — also called a parent LLC — is the main LLC to which the individual series LLCs connect. The master LLC is legally protected from liabilities and losses caused by an individual series LLC. The master LLC also files taxes on behalf of the full series.

    Benefits of a Series LLC

    One of the best benefits of forming a series LLC is the ability to protect each individual series LLC and its assets from the liabilities of the other individual series LLCs and the master LLC. Investors can manage wealth by dividing investments between the individual series LLCs based on potential return and risk.

    The series LLC business structure also quickly became the entity of choice for real estate holdings because it allows investors to separate — and protect — their individual properties.

    As previously noted, an individual series LLC also doesn’t have to file taxes. The master LLC files taxes on behalf of the full series. Furthermore, the series LLC structure is less complicated and less expensive than creating a corporation with subsidiaries.

    Forming a series LLC also will allow you to create separate members and managers within each of the individual series. Each member and manager can have different percentages of ownership and separate duties, powers, and rights. In addition, businesses with several profit centers can shield and separate their business operations. Each individual child series can enter into contracts as well as acquire and sell assets. But, remember to consult with an accountant familiar with the series LLC state tax code before you decide to form this type of LLC.

     

    States That Allow Series LLC

    Series LLC rules and regulations vary by state, and only 14 states currently allow the formation of this type of LLC. Federal lawmakers recently created the Uniform Protected Series Act which, once adopted by the individual states, aims to reduce the risk of the series LLC business structure while supporting its widespread use across the country.

    States that currently allow the series LLC structure include:

    • Alabama
    • Delaware
    • District of Columbia
    • Illinois
    • Indiana
    • Iowa
    • Kansas
    • Missouri
    • Montana
    • Nevada
    • Oklahoma
    • Tennessee
    • Texas
    • Utah

     

    Factors To Consider When Forming a Series LLC

    Before you decide to form a series LLC, you should consider several key factors. If you plan to sell goods or services in a state that doesn’t currently allow the series LLC structure, for example, your assets held by the individual series in that state might not have the same protection as the rest of your company.

    The series LLC structure also is more complex than other forms of LLCs, and there haven’t been many court cases to demonstrate what might happen in certain legal situations. For example, it remains unclear whether or not an individual series has protection in federal bankruptcy court. The Uniform Protected Series Act, once adopted by the individual states, will provide this protection.

    Until then, you must follow state regulations carefully when forming and operating a series LLC. If you don’t, the series won’t offer the liability protection it should have. As such, we strongly recommend you discuss the possible risk of forming a series LLC with an attorney.

     

    Steps to Form a Series LLC

    The process to form a series LLC is similar to setting up a traditional LLC, and involves five key steps.

    Step 1: Choose a Name

    Series LLC naming rules vary by state, but typically require the use of the phrase “protected series” within the name of each company. You also should name the master LLC in a way that distinguishes it from the individual series LLCs. In addition, include the full name of the master LLC in the name of each child series LLC.

    Here’s one example of a series LLC naming format:

    My Business, LLC, a series LLC
    123 Main Street, LLC, an individual protected series of My Business, LLC, a series LLC

     

    Step 2: Select a Registered Agent

    registered agent is a person or business that sends and receives legal papers on your company’s behalf. Most states require LLCs to nominate a registered agent during the formation process. Your registered agent must be a resident of the state in which you conduct business or a corporation authorized to conduct business in that state.

     

    Step 3: Document Your Series LLC

    Some states require LLCs to provide information about their series LLC on their Articles of Organization while others don’t.

     

    Step 4: Create a Series LLC Operating Agreement

    An LLC Operating Agreement is a legal document that outlines the ownership structure and member roles of your new LLC. A series LLC requires a carefully written Operating Agreement to ensure the proper protection of your series.

     

    Step 5: Apply for an EIN

    An Employer Identification Number (EIN) is a tax identification number the Internal Revenue Service (IRS) and some states use to track tax matters related to your business. Because series LLCs are a fairly new type of business entity, the rules surrounding them continue to evolve. In general, the IRS treats different businesses under a series LLC similarly to how the state in which that series LLC was formed treats those businesses.

    Read our guide on How To Start an LLC for more information.




    Series LLC FAQ

    What’s the difference between an LLC and a series LLC?

    An LLC is a single limited liability company. A series LLC is consists of a master LLC with one or more individual series LLCs branching off from that parent company. The individual series LLCs have protection from liabilities and losses suffered by the other individual series LLCs and the master LLC.

     

    How much does a series LLC cost?

    The cost of forming a series LLC can range from $50 to $1,000, depending on the state. Check out our How Much Does It Cost to Form an LLC? guide for details.

     

    What states allow series LLCs?

    States that currently allow the formation of series LLCs include Alabama, Delaware, the District of Columbia, Illinois, Indiana, Iowa, Kansas, Missouri, Montana, Nevada, Oklahoma, Tennessee, Texas, and Utah.

     

    Does a series LLC need its own EIN?

    Yes. If a state treats each business under a series LLC as a separate entity, then that’s how the IRS will treat them as well. That means each one will need a unique EIN.

     

    Is a series LLC a good idea?

    The series LLC business structure can protect your assets from liability and, in many cases, do so with less expense and more flexibility than other business structures.

     

    Can you change an LLC to a Series LLC?

    Yes. In the states that currently allow the series LLC structure, you can add individual series by changing your LLC Operating Agreement.

     

    How are series LLCs taxed?

    The IRS treats a series LLC similarly to how it treats a traditional LLC. That means its members are subject to self-employment taxes on their share of the series LLC’s profits.

     

    Why is a series LLC good for real estate businesses?

    Forming a new series LLC may offer a better option for real estate investors than starting a traditional LLC because they can place high-risk assets in separate entities — away from each other and low-risk assets. This protects each investment property from any losses or claims incurred by a particular property.




    Information on this page has been gathered by a multitude of sources and was most recently updated on December 2021.

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