What is a Series LLC?
You probably already know what an LLC is and the benefits of protecting your personal assets with a LLC designation. What you might not know is that depending on the state that you register in, you can incorporate multiple LLCs under a master or umbrella LLC. Each separate LLC is protected from every other LLC in the series and each LLC is only responsible for its own assets, debts and obligations. One comparison to get a better concept of a series LLC would be a corporation with multiple subsidiaries. However, unlike a corporation, an LLC still offers all the benefits of a regular LLC without the additional paperwork and fees of a corporation.
What States Recognize Series LLCs?
There are only certain states that legally recognize series LLCs. Since Delaware first recognized this new business entity in 1996, many other states have also chosen to recognized series LLCs. Those states are:
- District of Columbia
- North Dakota
- Puerto Rico
Benefits of a Series LLC:
There are many reasons why would would want to pursue a series LLC if you plan on opening up multiple businesses:
- Asset Protection: Each LLC’s assets are protected from any negative judgement as a result of another LLC in the series. For example, if you are a business with several different product lines and each product is incorporated as a different LLC in a series LLC, each product and it’s assets are safe should a negative court judgement occur against one of your products.
- Reduced Cost: When forming a series LLC, there is only one initial start up cost as opposed to paying the startup fee if you were to create multiple LLCs. Additionally, more often than not, there is no fee to add additional LLCs to your serial LLC. Additionally, only the parent LLC must be registered with a state and that also means that you only will need file only on annual fee for your series.
- Less Paperwork: An LLC has less required paperwork and formal records that need to be kept in comparison to a corporation with subsidiaries. This benefit carries over to an LLC series entity as well.
Drawbacks of a Series LLC:
While forming a Series LLC might seem like a no brainer, there are a couple of things you should consider before pursuing this form of business entity.
- Higher Initial Cost: The cost of forming a regular LLC compared to a series LLC is slightly cheaper in some states. States like Delaware and Texas, for example, don’t charge any additional fees for forming a series LLC. Illinois, on the other hand, charges $600 to form a regular LLC and $850 for a series LLC. Make sure you think about the long term vision for your company.
- Uncharted Territory: As mentioned before, series LLCs haven’t been around for too long; only since 1996. There are still a lot of legal questions that need to be answered and precedents to be set.
A series LLC makes sense if you plan on forming multiple LLCs that are going to be managed by one larger company. A series LLC provides similar asset protection to a regular LLC and lower costs and less paperwork. However, there is still some uncertainty with how the court systems in each state view and treat series LLCs. It’s best to review any past court decisions surrounding series LLCs in whatever state you choose to register in.