Is A Series LLC Business Structure Right for You?


Is A Series LLC Business Structure Right for You?

Investors and businessmen want to protect their assets from liabilities in case of litigation. A limited partnership or limited liability corporation is a standard tool of protection for businesses.

In a limited partnership, the liability cap of a limited partner stops at the amount of his investment. His other personal properties cannot be touched to cover for any liability arising from the operation of the partnership.

A limited liability corporation (LLC) offers the same personal liability protection to all of its shareholders. A relatively new business structure, the concept of series LLC, further extends this protection.

A series LLC (SLLC) is a business entity where one parent limited liability corporation owns and controls several cells or installments of child corporations. The liability of the series corporation does not extend to the parent LLC nor the other series LLCs owned by the parent.

Different business structures offer advantages and disadvantages to companies. The options can either be a partnership or a corporation. Under these two general categories, there are other specific business structures to select from. A company has to decide which structure to assume before registration and operation.

When choosing the type of business entity, they will form investors, consult with lawyers, and accountants. Their expertise and knowledge help prevent future problems in wrong registration, litigation, and unwanted dissolution.

Experts in series LLC will be able to guide you in protecting your assets and gaining the inherent advantages from this type of structure.

Advantages

The primary advantage of a series LLC is the separate protection it offers for each of the business series owned by the parent LLC. The liability of each cell will not extend to the other cells or the parent LLC.

The current naming convention for series LLC maintains the name of the parent LLC and preserves branding.

A cell name may always contain the parent name in the format XXX, LLC — YYY Series, where XXX is the parent name and YYY is the cell name. Inclusion of the parent name is only required in Illinois, and the advantage for branding may also be gained from shorter and easily memorable names.

There is one clear cost-saving advantage for forming a series LLC. Registration fees are paid only once when the parent is registered.

Although each cell must have separate management teams, their relatively small sizes make administration more straightforward and reduce their respective administrative costs. Each child cell must maintain its bank account, its financial statements, and keep its paid capitalization conforming to the legal requirements.

Only the parent LLC will file the tax return to include all the cells. This will simplify the filing process. The business may need a knowledgeable tax preparer in cases where the cells are numerous.

Drawbacks

The series LLC is not recognized in all states. Only the following have enacted laws for this business structure:

  • Delaware, 1996
  • Wisconsin, 2001
  • Iowa, 2005
  • Oklahoma, 2005
  • Illinois, 2005
  • Nevada, 2005
  • Tennessee, 2006
  • Utah, 2006
  • Texas, 2009
  • Montana, 2011
  • Alabama, 2017

A corporation organized as series LLC may operate in other states. Other options that offer advantages similar to this may also be available for businesses.

The concept is relatively new, and there aren’t enough court records to form a basis for legal prediction on outcomes of matters such as bankruptcy and dissolution.

Forming a corporation is not cheap, but the series LLC offers advantages not available to other business structures. Consultation with experienced lawyers and accountants will clear your questions and help you make the right choice.

 

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