What Is a Series LLC?

If your company has multiple revenue streams, you understand the amount of risk you face. A limited liability company (LLC) structure can only go so far, but a series LLC structure may offer the protection and flexibility you need. A series LLC allows you to own all revenue streams but treat them as separate businesses. Is a series LLC the right strategic move for your company? Learn all about a series LLC, including its pros, cons, and how to set it up. 

Exploring the basics of series LLCs

First, let’s look at the main difference between a typical LLC and a series LLC. A typical LLC structure allows entrepreneurs and their businesses to exist as independent legal entities. This means that if an LLC accumulates debt or faces legal action, its owners cannot be personally liable for any loss or damage to the company. That’s how an LLC differs from a sole proprietary company, where the owner and business are a single legal entity. 

A series LLC is a special form of LLC that allows a business to separate its main revenue streams. Each line of business becomes a distinct entity with the ability to earn profits and acquire assets, debts, risks, and losses. 

The beauty of a series LLC is that if any branch of the business faces risks, such as a lawsuit, that risk doesn’t affect any other branch of the business. That’s because each series is a standalone company with its leadership, employees, finances, assets, and investments while operating under an umbrella or master LLC. 

Advantages and disadvantages of the series LLC

Asset protection is the most significant advantage of a series LLC. Legal judgments that impact one series won’t affect the entire organization. It allows each series to act independently, protecting the umbrella company from unnecessary risk. Other benefits of a series LLC include the following: 

• Creating series LLCs costs less than setting up multiple traditional LLCs. In many cases, you need only append your articles of formation and pay a small submission fee for each series. 
• Series LLCs are less complex with regard to taxes, recordkeeping, and administration compared to a traditional LLC or a corporation with subsidiaries. 
• You only need to register the parent LLC in one state to operate multiple branches within and outside the state. This saves you the cost of registration and other legal fees. 
• You only file one tax return under the parent LLC to include all the series LLCs. However, this can complicate the filing process, as explained later in this guide. 

The disadvantages of series LLCs include the following: 

• Each series requires a separate bank account, meaning accounting processes for each series can lead to administrative challenges. 
• Depending on the state, each series may require a separate registered agent, meaning higher setup costs. 
• Similarly, some states may charge more to establish a series LLC than a regular one. This may be prohibitive for smaller businesses wanting to change their company structure. 
• Series LLCs are relatively new in the business world; many questions are yet unanswered because there’s no precedent, e.g., in bankruptcy. 
• You’ll also need an experienced tax attorney or certified accountant to file series LLC tax returns, an added expense. 

Setting up a series LLC — A step-by-step guide 

In many ways, a series LLC formation is similar to a regular LLC because it begins with registering your master or umbrella company. However, setting up the series varies by state; the guidelines below only apply in the regions where series LLCs have permits.

Step 1: Choose a name

Naming compliance rules say that your parent LLC name must be distinct from other companies registered in your state and must also include “LLC” in the name as an identifier. Next, your series LLCs must have different names from the parent LLC, but the parent LLC must be part of the series name. 

In practice, this means that your parent LLC name can be “Horizon LLC” with series names like “Horizon LLC Series A,” “Horizon LLC Series B,” and so on. This naming style helps investors and lenders identify your company easily as you do business within and outside your state. 

Step 2: Get a registered agent 

A registered agent is your primary point of contact should your business experience legal problems. You may decide to be your own agent, but it’s always best to delegate this role, given the complexity of the series LLCs. The agent must reside in the state where the series LLC operates. Search for companies offering registered agent services and learn about their fees and terms. 

Step 3: Draft your articles of formation 

Articles of formation or organizational outline details about your parent LLC must include its name, address, nature of business, and members and directors. See if your state offers simplified preformatted forms to fill out instead of writing these documents from scratch. Your state may also have separate articles of formation for series LLCs. If not, clearly state that your LLC is authorized to establish a series. 

Step 4: Write your LLC operating agreements 

You’ll need two sets of operating agreements: one for your parent LLC and one for each series LLC. This document is what grants liability protection for your business, and it requires details like:

• A clear statement that authorizes the formation of series LLCs as separate entities with their own management structures and finances
• Your accounting methods, fiscal year, and balance sheet disclosure processes
• Every owner’s percentage of ownership, voting power, and exit procedures  

Step 5: Create a series LLC 

Typically, you can form a series LLC by amending your master operating agreement and articles of formation to include the series. You can also file a certificate of designation with your state or ask your attorney for assistance. Since you only need to file articles of formation once, it’s easier to establish your series LLCs through internal processes. 

Note: You can transform a regular LLC to a series LLC without registering again. If your LLC is already operational, amend your formation and operation documents to authorize your company to create series LLCs. You can only do this conversion if your state allows for series LLCs. 

States that allow series LLCs

In the United States, Delaware was the first state to allow the creation of a series LLC.

Here is a list of other states that permit series LLCs:

Alabama	Indiana	Montana	Puerto Rico	Virginia
Arkansas	Iowa	Nevada	Tennessee	Washington D.C.
Delaware	Kansas	North Dakota	Texas	Wyoming
Illinois	Missouri	Oklahoma	Utah

Note:

• Some states, like California, don’t allow series LLC formation, but series LLCs from other states can operate there. 
• Arkansas, Virginia, Iowa, Nebraska, Tennessee, and Colorado allow for protected series LLCs to safeguard businesses. Protected series LLCs offer liability shields from debts associated with other series. If you form a protected series LLC, you must include “Protected Series” or “PS” in the company’s name. 
• You can find series LLC registration in your state’s business division website, e.g., the Secretary of State or the Secretary of the Commonwealth.  

How to use a series LLC company

Apart from additional liability protection, flexibility is a significant part of what a series LLC is. Companies can operate in numerous jurisdictions without the hassle of registering again in every state. A series LLC framework is beneficial for:

• Franchisees with various outlets 
• Real estate investors with multiple properties in their portfolio
• Venture capital funds that handle assets with different risk profiles

You can also use a series LLC framework if your company has multiple profit centers. This enables you to protect your most profitable divisions or departments from liabilities from less profitable ones. You can assign executives to lead your profit centers as standalone companies under one umbrella. 

That said, a series LLC framework can only work if you keep each series independent. That means signing contracts in the series name, keeping enough capital for each, and maintaining separate records. However, it can reduce bureaucracy, safeguard assets, and make compliance more convenient. 

How to manage finances within a series LLC

Regular LLCs typically need business bank accounts to handle all transactions and a savings account to help with budgeting. Most small business LLCs operate with a basic checking account registered under the company name. However, series LLCs require separate bank accounts, which can be difficult to track for compliance and tax purposes. This also complicates financial reporting: each series is a separate business but is legally treated as a single entity. 

At the same time, consider your overall running costs for operating a series LLC, not just for the registration process. You may find that maintaining separate books for each series costs the same, or not much different, than opening independent companies.

The best way to manage finances within a series LLC framework is through an enterprise resource planning (ERP) system. An ERP is ideal for optimizing series LLC finances: you can link the separate series accounts into one solution, use intuitive dashboards to track expenses and revenue, and take the complexity out of accounting and financial compliance. 

An ERP also includes automation and artificial intelligence features that save time and improve financial accuracy. 

Tax implications of setting up a series LLC

There are four essential tax issues you should know before establishing a series LLC. 

• Federal and state tax requirements are different. At the federal level, a series LLC is like a regular LLC and files one return. At the state level, however, you may need to file separate returns for each series. 
• Since business owners serve different company roles, employment tax issues may arise. For example, as a series member, you may file employee payroll taxes (FICA) and self-employment taxes for income. 
• Series LLCs may have tax advantages: a series LLC may pay fewer taxes than a sole proprietorship and avoid corporate taxes that C corporations must pay. These tax advantages depend on your state. 
• The IRS may adopt guidelines requiring series LLCs to file separate returns for each series at a federal level. Should that happen, it would add complexity to state LLC tax and compliance requirements. 

What should you consider before forming a series LLC?

In addition to the tax implications above, consider the following factors: 

• Series LLC liability protections are still untested in court, so they are not fully understood. Other operational frameworks may work better if you’re looking for more certainty in mitigating risk for your business. 
• Banks may also be challenging to work with since they need to familiarize themselves with how series LLCs operate. 
• It’s unclear what kinds of breaches impact a series’ liability protection. It becomes unclear which compliance errors “pierce the corporate veil” for these subcompanies or how to mitigate the risks in cases where asset maintenance is separate. 
• Bankruptcy and securities laws also provide little information about series LLCs. We have yet to determine whether a series LLC files for bankruptcy as a single entity, whether each can do so independently, and how to assess series debts. 
• Some states are uncertain about how a foreign series LLC qualifies to do business in their territory and whether their courts will uphold their or the formation state’s interests. 

Note: Dissolving a series LLC follows the same process as a regular LLC. Some states may allow you to dissolve the mother company as one entity, but others may require you to dissolve each series as an individual LLC. 

Conclusion 

A series LLC looks great on paper for additional liability protection and business expansion. But because it’s a relatively new business framework, it has many caveats. Not all states allow you to form a series LLC, there are no uniform taxation rules across the states that allow it, and it may cost more or less depending on your location and type of business. 

This guide is a high-level overview of what a series LLC is, so consult a tax expert or attorney for a deep dive into this business model. That way, you can fully leverage series LLC opportunities for your company while minimizing risk and maintaining compliance. Remember the various state rules, fees, and associated costs of a series LLC before choosing this business framework as your core company strategy.