An LLC vs. a Series LLC
A limited liability company or LLC is a kind of business ownership that is acknowledged in all 50 states of the United States. Although an LLC is not a corporation, it still provides the same liability protection as that of a corporation since it is detached from its owners, which are called “members.” An LLC that has many members may be taxed as a partnership, with profits allocated to the members depending on their share of the business. This type of business ownership is common since they are easier to form compared to a corporation while still providing identical protection from liability.
On the other hand, a series LLC has a master LLC as well as other LLCs — called “cells” — that are disconnected from one another for liability purposes. Each cell holds assets that are distinct from the others while the master LLC governs all the LLCs in the series. Each cell has its members and is accountable for its obligations and dues.
The most crucial aspect of a series LLC is the liability protection that it gives to each series. The resources that are owned by one series are protected from the liabilities of other series that are also within the same series LLC. The concept of the series LLC was created to isolate risk within distinct entities without the added cost of establishing new bodies.
Now that we have established what a series LLC is, here are other things you need to know before you form your own.
1) Series LLCs are registered with the state
Much like LLCs and other kinds of businesses, a series LLC is recorded with a state. However, there are specific states that allow you to form a series LLC while others don’t. The first state to allow the formation of a series LLC is Delaware, which isn’t at all surprising considering it’s famous for throwing its support behind businesses. Not long after, numerous states followed suit. These include Texas, Tennessee, Iowa, Illinois, Oklahoma, Nevada and Utah. And although it is not a state, the commonwealth of Puerto Rico is another place where you can establish a series LLC.
2) Businesses that benefit from a series LLC
Here are the businesses that typically benefit from a series LLC:
- A property management company that possesses different properties
- An arts and crafts business
- A business that has different product lines or services that can separate liabilities of each from one another
3) What are the benefits of a series LLC?
Less startup cost
Since only one filing fee is needed, your lawyer can establish the parent and cells at a reduced cost compared to setting up different LLCs.
Protection of assets
The assets of every cell are safeguarded from the liabilities and judgments against assets that are in other cells.
Fewer administration costs
You can form as many LLCs as you like but you need to bear in mind that each one is separate and would have to be administered independently. A series LLC lets you save on both administrative time and costs.
Isn’t as complex as a corporate structure
A series LLC does not have the same intricacies of structure, taxes and formalities as that of a corporation that has subsidiaries
Reduced sales tax
This depends on existing state laws but rent paid by a cell to another one in the series may not be subjected to sales tax.
4) What are the drawbacks of series LLCs?
Separately registered agents
You state might need you to have a different registered agent for each LLC in the series, leading to extra costs for all those agents
Tricky administration
Every LLC in the series will be required to have its bank account and with each having separate financial statements, each one would have separate accounting. If there are several LLCs in the series, this can turn into one tricky administrative chore.
The higher cost of formation
Forming a series LLC can be more expensive than forming a regular one. A good example is the state of Illinois, which charges $850 to form a series LLC. This is $250 more than the cost of forming a regular LLC.
