If you're forming an LLC and are doing your online research, you may come across a certain type of LLC known as a "Series LLC." Depending on your goals for your LLC, it may seem to be a natural form for the creation of your new LLC. However, there are some drawbacks to trying to use this type of LLC as well, and just blindly adopting a Series LLC form because you read about it in a blog or listened to a podcast that recommended it as the preferred form for you isn't your best course of action.
What is a Series LLC?
A Series LLC is a unique form of LLC that allows a single LLC to establish multiple “series” within the same company. Each series operates as a separate entity, with its own assets, liabilities, and members, but remains under the umbrella of the main LLC. This unique structure provides a level of asset protection and flexibility that is not available with a traditional LLC.
The concept of the Series LLC was first introduced in Delaware in 1996 and has since been adopted by several other states. Currently, the states that allow for a Series LLC form are:
Alabama, Alaska, Delaware, District of Columbia, Illinois, Indiana, Iowa, Kansas, Missouri, Montana, Nebraska, Nevada, North Dakota, Oklahoma, Puerto Rico, Tennessee, Texas, Utah, and Virginia
While the specific laws and regulations surrounding Series LLCs may vary from state to state, the basic structure and benefits remain the same.
Benefits of a Series LLC
One of the primary benefits of a Series LLC is that it allows business owners to separate different assets or lines of business into separate series, without the need to create separate LLCs. This can be particularly useful for businesses that operate multiple entities, such as real estate investors or franchise owners. By using a Series LLC, business owners can maintain separate books and records for each series, while still enjoying the benefits of a single, centralized management structure.
Another key benefit of a Series LLC is the increased level of asset protection that it provides. Each series within the LLC is treated as a separate entity, with its own assets and liabilities. This means that if one series incurs a debt or legal judgment, the assets of the other series within the LLC are protected. This can be particularly useful for real estate investors or other businesses with significant assets.
Finally, a Series LLC can be more cost-effective than creating multiple LLCs. Rather than incurring the expenses associated with forming and maintaining separate LLCs, a business owner can create multiple series within a single LLC. This can save time and money, while still providing the benefits of separate entities.
Potential Drawbacks of a Series LLC
While there are many benefits to a Series LLC, there are also some potential drawbacks that business owners should consider. One of the primary concerns is the lack of uniformity in state laws. While a number of states have adopted the Series LLC structure, the specific laws and regulations can vary widely from state to state. This can make it more difficult for business owners to navigate the legal and regulatory landscape.
Another potential drawback is the lack of established case law surrounding Series LLCs. While the concept has been around for more than two decades, there are still relatively few legal precedents governing Series LLCs. This can create uncertainty for business owners and their legal advisors.
Finally, it is important to note that not all states recognize the Series LLC structure. This means that if a business owner wants to take advantage of the benefits of a Series LLC, they may need to form their LLC in a state that recognizes the structure, even if they do not operate in that state. For my clients, a Series LLC is not available in the states where I practice law, so it's not a common recommendation that I give to my clients.
A Series LLC can be a powerful tool for business owners looking to separate different assets or lines of business, while still maintaining centralized management and asset protection. However, it is important to carefully consider the potential drawbacks and to work with a knowledgeable legal advisor to navigate the complex legal and regulatory landscape surrounding Series LLCs.
Do I Need a Business Attorney?
If you or your business needs help with setting up an LLC, it's important that you talk to a business attorney. Let's schedule a Legal Strategy Session online or by calling my Edina, Minnesota office at (612) 294-6982 or my New York City office at (646) 847-3560. My office will be happy to find a convenient time for us to have a phone call to review the best options and next steps for you and your business.