What is a series LLC

What is a series LLC?

An LLC whose operating agreement creates one or more series inside it. Each series can own its own assets, have its own members and managers, and run its own business. The law of the state treats each series a little like a separate company for liability, while the whole structure remains one LLC on the state's register. A property investor, for example, might hold each rental building in its own series.

How does the liability protection work?

State series laws say that the debts and liabilities of one series can be enforced only against the assets of that series, not against the other series or the LLC as a whole. That protection comes with conditions. Under Delaware's law, for example, the operating agreement must establish the series, the LLC's formation document must give notice of the limitation, and the records of each series must account for its assets separately from everything else. If the records are mixed, the protection can be lost.

Series LLC or separate LLCs?

Which states allow series LLCs?

Delaware was the first, and a growing number of states now have series laws, including Texas, Illinois, Nevada, Wyoming, Utah and Tennessee. The rules differ:

• Delaware has two kinds. A protected series is created in the operating agreement alone. A registered series is created by a filing with the state, can obtain its own certificate of good standing, and pays its own annual tax.
• Illinois requires a filing for each series and charges more to form a series LLC than an ordinary one: $400 against $150.
• California does not allow series LLCs to be formed there. A series LLC from another state can register, and California generally treats each series doing business there as a separate LLC owing its own $800 annual tax.

How is a series LLC taxed?

Federal rules are not final. The IRS proposed regulations in 2010 that would treat each series as a separate entity for federal tax, classified under the normal rules: disregarded if it has one owner, a partnership if it has several, unless it elects otherwise. Those rules have never been finalized, but they are widely followed. A series treated as its own entity generally needs its own EIN, books and, where required, tax return. See how LLCs are taxed.

What are the risks?

• Other states' courts. A state without a series law may not respect the separation between series when a claim arises there.
• Bankruptcy. How bankruptcy law treats an individual series is unsettled.
• Record-keeping. The protection depends on separate records. One mixed bank account can undermine it.
• Practical friction. Banks, lenders and title companies may be slow to deal with a series.

Who is it for?

Mainly owners holding several similar assets in a state with a series law, such as several rental properties in Texas, who will keep rigorous separate books. For most small businesses, one LLC, or a few separate LLCs where the risks differ, is simpler and safer. Whichever you choose, the operating agreement does the work. See LLC operating agreement.

This guide is general information. It is not tax or legal advice for your situation.