Seriously Serious Series LLC's

I've seen some questions about series LLC's around the circles where I hang out online, and wanted to take a moment to give a brief overview of what they are, how they operate, and for what reasons they might be beneficial.

What is a Series LLC?

To be as simple as possible, a series LLC is when a single LLC chains itself to one or more subsidiary LLC's so that the other, junior LLC subsidiaries are independent from one another, hold their own property, operate independently, but still have a connection to the original LLC. It's very similar in most respects to companies that are subsidiary to a corporation. The same person or persons can be the members operating any or all of the different LLC's in the series, but each must be operated as its own entity.

Why are Series LLC's Beneficial?

Let's give an example of when a series LLC might be a good solution:

Say you want to buy several pieces of property for investment, but some or all of these properties carry various different liabilities. Should something go wrong on one property and the single LLC that holds all of these properties is found liable, then ALL property could be up for grabs to the plaintiff to settle the judgment. A solution is to make a new LLC for each and every property to be the owner. This shields one property from another very easily. The problem is that in addition to all the setup fees, there are annual maintenance fees to be paid to the state where each LLC is established, as well as tax returns that must be prepared and filed by the accountant for each LLC.

Enter the series LLC

If a series LLC is used, there is one single LLC that is the 'head', if you will, and the other independent LLC's that are its subsidiaries. Beyond that, however, they have absolutely no connection to each other. BUT, a series LLC structure avoids the need to file annual tax returns for each LLC since only the 'parent' LLC needs to file one. Additionally, most states that allow series LLC structures also do not require the annual maintenance fees for them besides the parent LLC. In short, you save a good sum of money by filing only one tax return and paying one state maintenance fee, and still get the same structure and protection you originally wanted.

Potential Problems

Sounds too good to be true? Well, in some cases it is too good to be true. Some states do not recognize or accept the series LLC. In that case you might have to establish somewhere like Delaware and operate in your home state, but then you are still stuck filing a bunch of tax returns every year for the state. Also, there are potential liability issues if your state does not recognize the series LLC. To operate properly and safely, you may have to fiddle around with a trust in conjunction with the LLC, which adds even more paperwork and doesn't avoid the extra tax return, which could cost more than the LLC fee to prepare and file. Plus, there is some question as to whether or not the series is broken if some of the LLC's are established in one state and some are established in another, or multiple states.

Final Thoughts

If you are considering setting up a series LLC, you should contact an experienced attorney with specific questions and to seek advice. It can be very complicated to set up properly and very easy to mess up. With all the work involved, it is worth it to have a professional take care of the advice and paperwork.


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