Sometimes business owners discover that their choice of business structure needs to change. Even if you decided to form an LLC in the early days of your business, you might need a different business structure as your business grows and evolves. For example, if you decide to launch multiple businesses, own different properties as part of a real estate investment business or offer multiple unrelated products or services, all of these different aspects of your business might not fit under one LLC. Depending on where your business is located and what type of business you operate, one solution is to convert your LLC to a Series LLC.
Setting up a Series LLC can help your business get the protection of an LLC for each separate line of business that you operate. You can keep your personal finances and business finances separate, while also creating separate legal entities for each part of your business, but all under one “umbrella.”
Learn more about the Series LLC and what your options are for converting an existing business to a Series LLC.
What Is a Series LLC?
A Series LLC is an LLC that contains one or more additional LLCs. The main LLC that contains the other LLCs is also called the “master LLC” or “umbrella LLC”; the additional LLCs that are housed under that main LLC are called “series” or “cells.”
A Series LLC makes it possible to split up different parts of your business or different assets of your business and give each of those parts or assets its own separate rights, liabilities and obligations. Instead of treating every part of your business as the same company, the Series LLC lets you treat each part separately. This can be useful, depending on your business purposes and how you run your business.
Not every state allows Series LLCs. As of 2019, the following states allow business owners to create Series LLCs:
District of Columbia
Another point to keep in mind is that the Series LLC is a relatively new type of business entity. The courts have not yet clarified certain points of law regarding the legal rights and obligations of a Series LLC. If your Series LLC is going to do business in other states, make sure those other states recognize the legal rights of your company. Be prepared to file Foreign Qualification paperwork in those states to be able to do business there as a Foreign LLC if needed.
Consult with an attorney before converting an existing LLC to Series LLC. Depending on your business goals, financial situation, tax situation and other circumstances, a Series LLC might not be the right fit for your company or might not accomplish what you want.
Benefits of Converting an LLC to a Series LLC
Series LLCs can be complicated, but if your business is located in a state where they are allowed, if you are comfortable with the legal advice that you get from your attorney and if you are prepared to adapt your business operations to the requirements of the Series LLC, this type of business entity can have several benefits:
Protect assets of each business separately: In a Series LLC, the assets of each “series” or “cell” are treated separately from every other business in the series. So for example, if you wanted to set up a Series LLC for a real estate business with multiple rental properties, each property would be owned by a separate LLC in the series. Any legal liabilities against one property would be treated separately from the other LLCs under the umbrella. In this way, the Series LLC can help business owners to manage their risks.
Simpler filing requirements than a corporation: Another option that offers some of the same features as a Series LLC is incorporating your business as a C Corporation and setting up subsidiary companies under that corporate entity. However, the C Corporation has more intensive compliance and filing requirements, along with corporate income taxes. Depending on the size of your business and business goals, you might prefer to stay with the Series LLC.
Just one tax filing: A Series LLC only has to file one business tax return (under the name of the “umbrella” or “master” LLC), with all of the series/cells included on that tax return. This makes it possible to do business with the liability protections and risk management spread across several “separate companies,” but without additional complexity in filing and paying taxes. Whether or not you have a Series LLC, you should work with a professional accountant or tax attorney to manage your business taxes.
One registration with the state: With a Series LLC, you do not have to file multiple Articles of Organization for every LLC; you can have them all included with one filing. This helps simplify your annual reporting requirements, as well as potentially saving money on state fees.
How to Convert an LLC to a Series LLC on Your Own
If you already have an existing business, it is possible to convert your LLC to a Series LLC. However, the process is different depending on which state your LLC is registered in. Different states may have slightly different terminology, requirements or fees.
Despite differing processes for each state, in general, the steps to converting to a Series LLC will follow these steps.
Consult with your Secretary of State
Start by checking with your state’s Secretary of State to see what the required forms are to convert an LLC to a Series LLC. Many states do not have clearly defined processes for Series LLCs or converting to Series LLCs. You might need to make a phone call to the Secretary of State’s staff and ask for advice. They cannot offer you legal advice or tax advice, but they should at least be able to tell you what the process is for your state and how to access the right forms.
For example, when forming Series LLCs in Texas, you will need to include certain legal language in your Certificate of Formation and Company Agreement, and you must maintain separate records for the assets of each separate series of the company. The Texas Secretary of State does not offer a specific form for Series LLCs. If you want to set up a Series LLC, you can use Form 205 and add the required information under Supplemental Provisions/Information.
Lastly, you will need to file your document with your LLC formation state. Again, check with your state to find out how to file your information, whether it be online, in person or through the mail. Check on any filing fees required, which varies by state. You may pay as little as $50 or as much as $1,000.
Create Separate Records for Each Series
It may be required that you have separate records for each series in your LLC. This can mean individual bank accounts, financial records, contracts and bookkeeping for each series. A separate Registered Agent may be required for each series as well. You may also want to create a unique name for each to provide further distinction. Even if these steps are not required by your state of formation, having separate records for each Series LLC is a best practice for maintaining your multiple businesses.
When it comes to converting your LLC to a Series LLC yourself, you may want to consult with an attorney or trusted resource to ask about your options. You can get help to ensure you use the right forms or add the right legal language to your Certificate of Organization.
If you don't want to go it alone, Incfile's business formation specialists can help you navigate the process and file the forms with your state. We've helped over 250,000 small business owners like you since 2004. We are here to take the burden off of you and help you grow your business to great success.
Ben Gran is a freelance writer from Des Moines, Iowa. Ben has written for Fortune 500 companies, the Governor of Iowa (who now serves as U.S. Secretary of Agriculture), the U.S. Secretary of the Navy, and many corporate clients. He writes about entrepreneurship, technology, food and other areas of great personal interest.