What Is A Series LLC? The Advantage & How To Structure It?
The small business owner may start out with a sole proprietorship, or perhaps a traditional LLC corporate entity. As the business expands, the LLC owners will find peace of mind knowing that their personal assets are protected from liability. However, with more complex businesses, owners often find that the various parts of the company may put the entire enterprise at risk if any subsidiary fails. This problem can be solved by forming a Series LLC. Series LLCs are a more recent trend where the business is made up of one large umbrella LLC with smaller subsidiary LLCs underneath. Each smaller piece is separated from the whole with a legal firewall, ensuring that no one aspect of the company can cause an enterprise-wide liability. In this article, we describe the Series LLC concept and explain the benefits of the structure. Since the paperwork can be a bit complex, we also recommend considering a third-party LLC formation company that can help set up series LLCs. We reviewed the leading competitors and analyze the best choices for you.
What Is A Series LLC (Limited Liability Company)?
Though all LLC owners enjoy protection for their personal assets, many still are open to risk within the business itself. If one part of the business fails or is liable for damages – the whole enterprise may go bankrupt. This is where the series LLC concept comes in. A Series LLC consists of an overall parent LLC, with smaller subsidiary LLCs formed underneath its umbrella. Each individual LLC within the series is then given its own business identity – separate from each others. Liabilities are not shared across the entire Series LLC. An example may be an owner of several retail stores who starts a Series LLC for the entire operation but keeps each store as a form of child LLC under the parent LLC. This structure also is common for real estate investors.
What Is A Master LLC?
The Master LLC is a common part of the series LLC structure. You can think of the master LLC as the umbrella LLC for an entire business enterprise. This parent LLC usually holds no assets and usually conducts little in the way of activities – rather its purpose is just to set an all-inclusive structure for the series. The smaller individual LLCs are set up under the master LLC.
Benefit Of A Series LLC
Business owners whose companies have multiple distinct units may want to form a series LLC. The archetypal example is a real estate investor who wants to set up one master real estate LLC but still wants each individual property to operate as its own LLC. Series LLCs offer liability protection within the company, personal liability protection, and reduced fees for these types of business structures.
Savings on Expenses
Entrepreneurs can save considerable sums of money with the series structure. In most states, owners only have to register and pay for the master LLC. The additional sub-companies can be formed within the company’s internal paperwork with no need for additional filings or fees. For those owners with dozens of separate holdings, the savings become significant. Check your state regulations thoroughly so you make sure to designate each subsidiary LLC properly.
The series LLC structure protects owners from personal liability just as with traditional LLCs. The LLC operates as its own business entity, whose debts and damages are enforceable only against the business. The owners’ real and personal property are not at risk.
Reduce Liability & Less Administration
In a series LLC, there is also reduced liability within the business itself. The debts and liabilities of any one subsidiary are enforceable only against that one sub-LLC. For the real estate investor example, if one building is vacant, damaged, or foreclosed upon – only that building would be at risk. All the other subsidiary properties are unaffected. Additionally, there is far less paperwork and administration necessary for a series LLC compared to starting multiple full LLCs.
As an additional benefit, the series LLC format provides easily distinguishable sub-businesses. These can be sold or transferred individually separate from the overall master LLC.
States Permit The Series LLC
As state law elves, there are increasing cases in which Series LLCs are offered as a separate entity. In most states, series LLC businesses are defined in the law, although they do not require separate filing. The current states that allow LLCs include Alabama, Arkansas, Delaware, Illinois, Indiana, Iowa, Kansas, Missouri, Montana, Nevada, North Dakota, Oklahoma, Puerto Rico, Tennessee, Texas series LLC, Utah, Virginia, Washington, D.C., and Wyoming. California is not permitting series LLC formation but will recognize series LLCs formed in another state. This foreign series may also be registered for businesses in CA. Consult state officials in your state for specifics of series LLC laws.
5 Steps To Structure A Series Limited Liability Company
A number of different states have laws that govern the creation of a Series LLC. A Series LLC generally forms a similar structure to a traditional LLC. This translates to filing an application for an incorporation document at the state’s business entity file office, usually the Secretary of State. Additionally, series LLC owners should designate a registered agent, obtain an EIN number, and file an operating agreement. The main differences are that the document of formation should include the statement that it is possible that LLCs may form Series that are protected from any liabilities.
Choose a Name for Your LLC
When forming an LLC, a unique name ending with “LLC” must be chosen, and the owner can check for its availability through searchable databases provided by most states. After confirming the availability, the necessary legal papers should be filed to reserve the name.
Choose Your Registered Agent
An LLC needs an official address and a person responsible for receiving government correspondence, such as tax forms, lawsuits, subpoenas, and business paperwork. The person responsible is known as a registered agent, and while some LLC operators can be their own agents, many prefer third-party services for convenience and efficiency.
File Articles of Organization
To officially establish an LLC, a legal document known as Articles of Organization must be filed with the state government. This document includes fundamental characteristics of the LLC, such as its name, purpose, duration, management structure, registered agent’s name and address, capital structure, and profit/loss allocation.
Create an LLC Operating Agreement
Series LLCs should have an Operating Agreement, which is a document that outlines how the business will be operated and how the duties of all parties involved are divided. Members of the LLC are responsible for creating this document, which serves as a guideline for all involved.
Obtaining an EIN
It’s essential to establish a separate identity for Series LLCs, and that’s where the Employer Identification Number (EIN) comes in. This federal identification number is used when applying for business credit, filing tax documents, or whenever the company needs to be identified as the same separate legal entity.
The Top 2 LLC Services
|Northwest Registered Agent||ZenBusiness|
|Award||Best Overall||Most Affordable|
|Detail||Read Review||Read Review|
Northwest Registered Agent
Northwest has gained the trust of 3 million customers over the years and is known for its successful LLC formation and registered agent services. They have a team of Corporate Guides who provide friendly and helpful customer service and guide clients through every step of the LLC formation process. Unlike automated call menus or chatbots, clients can always speak with a real person when they call. Moreover, Northwest offers reliable nationwide registered agent services with excellent data security.
Zenbusiness is a popular name in the LLC formation field, receiving thousands of 5-star reviews in recent years. Customers find their user experience intuitive and state-of-the-art, while reviewers consider their service easy to use. They offer three transparently priced options that provide excellent formation and compliance services. Additionally, ZenBusiness boasts faster turnaround times than Northwest.
Any business owner who wants to protect their personal assets is wise to start an LLC. The LLC structure is simple yet still confers liability protection. Some owners who have more complex businesses with multiple subsidiaries or separate parts may even want to start a series LLC. The series LLC protects the entire business operation in the case of liability against any one part. This format is becoming more widely available all the time, with the number of states offering series LLCs growing. Filing the correct paperwork and assuring compliance for the series LLC requires time and attention. We recommend you consider using an experienced and reliable LLC formation company to handle the duties. Northwest Registered Agent and Zenbusiness stand out as top performers in the field.
Frequently Asked Questions (FAQs)
Yes. You can find many reputable LLC formation services online. To vet the reliability of any service, you can consult expert reviews and client ratings to determine the features and satisfaction of that service. Northwest Registered Agent and Zenbusiness are reliable companies that are highly rated by users.
Yes. It is imperative that business owners keep a separate bank account for their LLC than their personal assets. This helps keep the business as a separate identity from your personal affairs. Series LLC owners should keep separate accounts for each subsidiary.
The LLC structure provides liability protection that a sole proprietor does not have. In an LLC, the business is its own separate legal entity. Any debts, lawsuits, or other liability are enforceable only against the company. This keeps the owner’s personal assets safe.
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