While the limited liability company (LLC) is a highly popular business structure, for some larger or more complex businesses it may not be viable to operate the entire company as a single LLC. In recent years, several states have welcomed the arrival of a new twist on the limited liability company, the Series LLC.
The main benefit of the LLC in general is the fact that it affords its owners personal asset protection. This means that if your company is sued, creditors can only target the assets of the LLC itself, rather than going after your personal possessions or assets.
A Series LLC offers the same protections for your personal assets, plus the benefit of housing several individual branches of your company – a series of LLCs – under one main LLC umbrella. In this way, a Series LLC is similar to a corporation with several subsidiaries, but with lower start-up costs and no corporate tax burden.
Operating a Series LLC enables a company to split off different branches of the business while still functioning as one cohesive company. For example, if your business has several different product lines that don’t overlap with one other, a Series LLC can be a great way to keep each line separate while maintaining a unified management structure.
Another excellent benefit of a Series LLC is that, just as a single LLC operates as a separate entity from its owner or members, each LLC within a series operates independently from the others. This provides them with financial protection should one of their fellow LLCs run into trouble. This is particularly helpful for businesses taking a risk with a new product line or offering a new set of services.
Instead of exposing the entirety of your company to that risk, you can contain the risk in one LLC and protect the rest of your business from any potential losses you may incur in your new endeavour.
The following states allow for the formation of Series LLCs:
You can also form a Series LLC in Puerto Rico and the District of Columbia. In addition, California does not allow you to form a Series LLC, but it does allow for Series LLCs formed elsewhere to operate in the state.
Depending on what type of business you run, there can be quite a few advantages to structuring as a Series LLC. Here’s a selection of the ones that most commonly apply:
Minimal administrative requirements: Forming a corporation and subsidiaries, or multiple LLCs, requires much more ongoing compliance and maintenance than a Series LLC.
Of course, a Series LLC comes with a few drawbacks. Before starting a Series LLC it’s important to consider whether the following negatives may outweigh the advantages to your particular business.
For these reasons, the American Bar Association cautions entrepreneurs to do a thorough cost-benefit analysis before forming a Series LLC.
In most states, the formation process for a Series LLC does not differ much from that of a regular limited liability company. The key difference is that you’ll need to indicate in your formation documents that your LLC will be authorized to form a series. You’ll then want to prepare an operating agreement for your umbrella LLC, as well as one for each LLC in the series.
The master LLC’s operating agreement describes how the entire series works, while those of the individual LLCs in the series outline more specific and small-scale business operations. You can add an LLC to the series at any time by simply amending the umbrella LLC’s operating agreement.
While you can prepare and file the necessary paperwork to form a Series LLC yourself, because of the more complex nature it can be useful to hire a business attorney or professional business services provider. If an attorney is not in your budget, there are many reputable companies that can handle the business formation process for you at a reasonable rate (prices may vary for Series LLCs).
The Series LLC is a relatively new business structure with several benefits and shortcomings. While there are still some legal grey areas that need to be addressed, this structure can be a great asset to certain businesses.
If you’re planning to form an LLC, a Series LLC can be a great option to consider.