Business-Minded Legal Solutions

How series LLCs work

Starting businesses is a habit for some, particularly investors and entrepreneurs. Rather than starting each one from the ground up, it can make sense to use a series LLC. First available in Texas in 2009 but created in Delaware as early as 1996, series LLCs are umbrella entities under which owners can create multiple LLCs that are separate, each with their own members, membership interests and assets. Each series can operate a separate investment or business and have unique obligations, rights, liabilities and goals.

The benefits

These vary, but some common advantages include:

  • Protection: The LLCs are designed to be separate, meaning each is responsible only for its own debts and obligations without impacting the others.
  • Scalability: Because it is a series, the series LLC can be formed with a single state filing fee. It allows those involved to create new LLCs quickly and efficiently while offering the benefits and protections similar to a traditional LLC.
  • Flexibility: There can be flexibility to fit the needs of each LLC. Each can use unique names, assets and structures. Profit distributions need not reflect ownership percentage if the LLCs are taxed as partnerships.
  • State filings: While there are reasons to file a formation document for each series with the state, it is only the parent LLC that is required to register. This can reduce legal costs and filing registration fees.

The applications

Organizations that commonly use series LLCs include:

  • Real estate investment: Investors, owners or members may have a robust portfolio of properties with different combinations of members attached to each and varying ownership percentages.
  • Franchises: Franchisees with multiple outlets can be an ideal application for a series, maintaining the separate status for each territory or location.

Is it the right format?

Series LLCs have certain drawbacks, as well. For example, since each LLC is separate, their bank accounts, financial statements and other paperwork should be maintained separately. Some lenders are wary of series LLCs so it is important to consider the capital structure when determining if a series is appropriate. And some states do not recognize series LLCs so businesses with multistate activities need to be wary. But for some, the benefits outweigh the downsides. Those interested in forming a series LLC can discuss their business needs with an experienced business law attorney. They can draft documents that reflect the clients’ needs and goals, and tailor them to fit the individual LLCs.