Series LLCs

The Series LLC is a relatively new variation of the LLC, now adopted by legislation in eight states (Delaware, Illinois, Iowa, Nevada, Oklahoma, Tennessee, Texas, and Utah) with more sure to follow as the legal and tax issues are clarified by the states and the IRS.

The purpose of the Series LLC is to allow for the creation of a master LLC, which is then divided as needed into one or more separate LLCs with common or varying business purposes, governing rules, and ownership interests. The key is that each of the sub-LLCs is intended to be treated as a distinct and separate entity—each isolated from the liabilities of the other.

• Each unit has its own owners (members) and may be managed separately from the master LLC and other units.
• Each unit must maintain separate books and records.
• As with a regularly formed LLC, the owners (members) of each unit are not financially responsible for the debts and obligations of the other units.
• A unit may conduct part of the business of the master LLC, or may conduct a wholly different business.
• Each unit has its own assets and liabilities. The members of each unit are treated under the laws of the state where the master LLC is formed as owning an interest in only that unit, and have no rights as members of one unit in the assets or income of any other unit.
• Each unit is liable only for its own debts and obligations. For example, this type of vehicle would be popular with real estate investors who own multiple properties. A Series LLC would be formed and would provide for a subdivision into separate sub-LLCs—one for each property. It is easy and inexpensive to create the protection of multiple LLCs without additional cost or extensive paperwork on each. The idea is to achieve the benefits of liability protection of separate LLCs without the costs of formation and state taxes associated with separate entities.

Since the concept is new, we don’t have definitive law on how these structures will be regarded by the courts or the IRS. California, which does not have Series LLC legislation, has announced that Series LLCs from other states will be permitted, but each entity in the series will be required to pay the full Franchise Tax (minimum $800). Once the legal treatment of the Series LLC has been settled, it may be useful and convenient in a variety of circumstances, but outside of the states which have passed specific legislation, the outcome remains open to question.