New Business Structures: Series LLC
There has been an emergence of new business entities giving entrepreneurs, businesses, and individuals an opportunity to select an organization structure that fits their company’s needs. In the month of April, the Legal Resource Center will discuss some of these new entities beginning with the Series LLC. Readers should note that not all states recognize these new business entities. Therefore, it is best practice to review current state law prior to business selection.
The Series LLC (“Series LLC” or “SLLC”) is a single LLC often referred to as the “parent” or “umbrella” LLC with one or more sub-LLCs or “series” that are separate and distinct, which generally provide the following:
- Autonomy: Each series can hold its own assets, take on its own debts and liabilities, have its own distinct members and management, sue and be sued in its own name, and pursue its own business lines;
- Taxation election: Each series is taxed separately, receiving pass-through treatment unless it elects otherwise; and,
- Limited Liability: Each series is effectively treated as an individual LLC relative to other series, such that the debts and liabilities of a series are enforceable against that series’ assets only.
A Series LLC is similar in concept to a corporation with several subsidiaries. However, the Series LLC concept is "designed to segregate risk within separate entities without the cost of setting up new entities." This type of entity would be ideal for a business that wants to allocate its divisions in their business, explore different markets or products or divide ownership of businesses real property.
While the Series LLC provides some benefits, there are some concerns. First, setting up a Series LLC can be expensive since some states consider each series a taxable entity. Additionally, there is currently little state legislation leading to uncertainty as to how the Series LLC would be treated by the courts. Additionally, there is little uniformity between states that do accept Series LLCs. Moreover, many organizations, such as the American Bar Association question the Series LLC; other legal organizations such as the Uniform Law Commission have developed standards.
To date, the Series LLC is available in Alabama, Arkansas, Delaware, District of Columbia, Illinois, Indiana, Iowa, Kansas, Missouri, Montana, Nebraska, Nevada, North Dakota, Oklahoma, Puerto Rico, Tennessee, Texas, Utah, Virginia, and Wyoming. While a Series LLC cannot be formed in California, it does recognize a registered Series LLC formed in another state provided registration with the California Secretary of State occurs before it starts doing business in California. Notably, the California Franchise Tax Board takes the position that each series counts as its own LLC for fee purposes, meaning payment is the same whether you set assets up in series or in their own separate LLCs.
For more information on Series LLC, see The Series LLC: An Organizational Structure that can Help Mitigate Risk or Series LLC.com
This article is for educational purposes only.
