What Is a Series LLC & Why Might I Need One?

What Is a Series LLC & Why Might I Need One?

Do you own multiple real estate properties or have separate investments that you want to protect from sharing different forms of liability and risk? If so, these are the types of scenarios where a Series LLC might be a good solution for your business. Here, we’ll discuss where and how a Series LLC functions, and how it might be beneficial for your company.

What Is a Series LLC?

A Series LLC gives you all the same benefits as a regular LLC, but it serves as a sort of “umbrella company” with additional flexibility and protections for multiple companies or lines of business within your overall operation. For instance, a Series LLC can give rental property owners a way to separate their real estate investments from one another. Businesses who operate multiple channels of revenue (or have separate teams or divisions in different states) may determine that a Series LLC is the best fit for their company as well.

Even though Series LLCs were created to simplify investment portfolio management, this type of business structure is still a relatively new approach to LLCs. And Series LLCs are currently only available in 8 states:

  • Delaware
  • Illinois
  • Iowa
  • Nevada
  • Oklahoma
  • Tennessee
  • Texas
  • Utah

So depending on the state in which you reside, the Series LLC option may not be available. If it is available, each “Series” of the LLC should be added and listed in the Operating Agreement. In the sections that follow, we will review the advantages and limitations of the Series LLC for business owners. Of course, forming a Series LLC can be complicated, so you’ll want to seek professional advice before deciding on this course of action.

Benefits of Forming a Series LLC

A Series LLC can be a great way to separate your business assets and divide the responsibilities for investment and debt in different areas or divisions of your company. A Series LLC allows you to form multiple “mini-LLCs,” so to speak, and operate them all under a single umbrella company. Each LLC in your series would have its own members, bank accounts, debt, and other unique qualities that make up a typical LLC. Operating in this fashion can also help you disperse and minimize any risk and liability that could be shared if you operated all your businesses under one single LLC.

If you’re like the property owner we mentioned above, for example, you might want to operate each of your rental properties as separate legal entities within a Series LLC. This way, if one tenant decides to sue you for something that happens on your property, your liability would be limited to that one property — not everything you own under the entire company. A Series LLC can also afford you certain protections when it comes to debt. Having your debts and obligations separated among your various channels of revenue can be a smart move. This makes it simple for you to manage the movement of your revenue and payment of debt.

From an administrative perspective, forming a Series LLC can make a lot of sense. First of all, the cost and paperwork involved with forming several separate LLCs versus starting one Series LLC can be significant. But remember that the filing fees and availability of a Series LLC option will vary from state to state.

If a Series LLC is available to you, it’s definitely worth thinking further about whether your business model could benefit from it. Especially if you are a startup or individual who wears many hats in your company operations (as lots of entrepreneurs do these days), forming a Series LLC could save you plenty of time and administrative effort that you could devote to growing your business.

Risks of Operating as a Series LLC

There are lots of upsides to starting a Series LLC, but it’s important to be aware of the potential risks as well. First of all, make sure you work with an accountant or business incorporation service that fully understands whether or not the Series LLC is the best structure for your company to operate under. This is especially true if your business plans on operating in several states, since you’ll have to comply with each state’s laws. Again, if you are a lean company, this could give you pause — you might not want to deal with separate state regulations for every part of your business.

However, if you are keeping all your business in one state, you might find the climate for Series LLCs rather friendly (depending on where you are). For instance, a Texas Series LLC that keeps all their business in that state can operate any kind of company that is legal for all LLCs under state law. You can see how some states make it simple to do business as a Series LLC while others don’t, so make sure to check the regulations of the state where you plan to operate. And remember that some states prohibit the Series LLC altogether!

Another risk of operating a Series LLC is that it might create additional costs and effort on the financial management side. When you have a Series LLC, you will have to keep all of your bank accounts for each company separate and manage each company’s finances independently. While this can help protect your assets from sharing risk, it can also elevate your accounting costs and complicate your day-to-day financial transactions.

For example, if you currently own multiple rental properties under one regular LLC, you might be used to sharing the expenses and revenue among them: channeling funds from one property to pay maintenance costs for a different property, etc. This type of financial management could pose a problem as a Series LLC, since each property would then technically be a separate company. You’ll need to weigh the risks and tradeoffs depending on your preferred way of doing business.

You might also think that a Series LLC would offer you full bankruptcy protection in the event that you get sued or suffer losses in one of your Series LLC companies. While this may be true in one state, it might not be the case in another — Series LLC laws can vary greatly state by state. The type of loss or lawsuit could affect these protections as well.

A common warning against Series LLC formation is that they are still so new that there are many areas of unsettled law regarding their existence. I t is always good to be cautious and seek professional advice before making any major business decision. So if you have a complex business that you want to simplify and operate as efficiently as possible, you might want to meet one-on-one with a local CPA or seek the advice of a company like Incfile that specializes in LLC formation with state-specific expertise. The right decision could save you money, time, and years of legal headaches!

Are you ready to start a business, form an LLC, or reorganize your business structure with a Series LLC to meet the changing needs of your company? Talk to Incfile today! Our incorporation experts can help you evaluate your options with state-specific advice.

Ben Gran

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.
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