Can I Convert My LLC to a Series LLC to Expand My Business?
Initially, a limited liability company may be perfect for your business needs, but as you grow, it may not be broad enough to encompass everything you want to achieve. If that’s the case — and your company is based in one of the eight states that offers the option — you might be considering a Series LLC.
In essence, this structure serves as an umbrella under which you can house multiple business entities. This can be useful in keeping a variety of business interests, members or assets united under a single body. To help you truly understand what a Series LLC is and how you can use it, let’s first discuss how they are created.
Creating a Series LLC
First, a Series LLC boasts the same features as a traditional LLC. Think of it as a way to fold multiple LLCs under one. As such, it does offer additional protections and the flexibility of having several businesses legally connected to each other. If you’re already operating multiple revenue streams or even separately registered teams in different states, a Series LLC could help unify your business interests in a way that has eluded you so far. Imagine how much more manageable your investment portfolio would be in this case.
Of course, Series LLCs are only offered in eight states throughout the nation: Delaware, Illinois, Iowa, Nevada, Oklahoma, Tennessee, Texas and Utah. So the viability of this option is intensely tied to the state in which your business operates.
If you do choose to create a Series LLC, you first need to be sure to include your LLC within the Series LLC in your operating agreement. This is a fundamental step in establishing the connectivity between your (up to this point) disparate businesses. The complexity of the conversion process depends on a variety of factors, as we’ll discuss next.
Converting to a Series LLC
If you have separate businesses, you’re ideally suited to convert to a Series LLC. But, before you do, you need to do a bit of housekeeping. After all, a Series LLC involves distribution of assets and liabilities across the individual companies that lie within. So you’ll need to maintain separate books and accounts for each LLC under the Series LLC.
If you have a ton of outstanding debt, pending lawsuits, contractual obligations or other liabilities, you might have some serious legwork ahead before you can make the switch. In some instances, liquidation of the original LLC would be a simpler approach, leaving you open to create a new Series LLC thereafter.
Once you’re ready to convert, turn your attention to two documents: the articles of organization and the operating agreement. These will both need to be amended, a process that tends to be pretty straightforward as long as you specify the series and clarify that no single LLC within the series is liable for the others.
Then you need to update the titles for any property to reflect ownership and the new structure under which each LLC is housed. Going forward, ensure that you maintain separate records and financial accounts for every LLC to keep your liability protection intact.
What to Consider
As with any business structure, the Series LLC offers both great rewards and substantial risks. Of the former, you naturally have the flexibility that comes with separate operation of each LLC. These companies will have individual memberships, accounts and the same elements that they would have without the existence of a Series LLC. You can leverage this structure to manage liability, debts and other obligations, sharing that responsibility among all your businesses.
You’ll also save time and effort on administrative tasks, as creating a Series LLC is infinitely simpler than a collection of individual LLCs. For startups and entrepreneurs, a Series LLC could streamline your business from top to bottom.
On the other hand, a Series LLC that is rashly created could put your business in a less than desirable position. Even with a Series LLC, you still need to comply with state laws for every state in which you operate, which could complicate matters. After all, a Series LLC isn’t even recognized by the majority of states, and the legal protections provided therein will vary wildly based on your operations.
Moreover, you might wind up actually generating even more work and greater costs for your business, since you will need to manage finances across each LLC independently. Because Series LLCs are still a developing concept that was only introduced in 2012, be sure to consult with your team before rushing into this structure for your business.
Taking the Leap
Only you can make the call of whether a Series LLC makes sense for your business. No matter what you decide, at least now you have a general knowledge of what they are and how they function to light your way.
Switching up your business structure is not a decision you should make lightly. So be sure to explore every option before filing the necessary paperwork. If you need help in that regard, consider reaching out to Incfile. Our focus is on providing small business owners with the extensive resources and assistance they need to keep their companies running smoothly, starting with incorporation.
We’re here to answer your questions and help you determine if a Series LLC is your best course of action. For more on how we can help, check out our website and get started today!