When you’re starting a business, you must know the different business structure options in front of you. That’s why it’s critical to understand what is a Series LLC company and the various pros and cons of this business structure.
A Limited Liability Company (LLC) is a go-to choice for many entrepreneurs as it’s a convenient way of launching your business and while shielding yourself from liability.
However, you don’t necessarily have to opt for a traditional LLC. Instead, you could also convert it into a Series LLC.
But what exactly is a Series LLC and how do you convert your LLC into one?
Let’s find out.
What is a Series LLC?
As the name suggests, a Series LLC is a different type of LLC that was first introduced in Delaware in 1996.
Since then, it’s come a long way and now you can start one in approximately 20 states in the US. You can also convert your traditional LLC firm into a Series LLC in these states.
Simply put, a Series LLC is a type of LLC that has a main or master LLC under which numerous other LLCs operate in a series. Each of these LLCs (called cells) are separate from each other, solely for liability purposes. On the other hand, the master LLC controls all of these cells.
The major advantage here is that each cell has its own set of owners and is only liable for the debts and obligations it takes on. This, essentially, works out to be similar to a Corporation that has multiple subsidiaries.
However, as each series cell is separate from the other, you’d have to maintain separate accounting for each of them. You might also be required to have a separate registered agent for them.
Why Should You Opt for a Series LLC?
This is likely the first question that’ll arise in your mind on hearing about Series LLCs. The main reason to opt for a Series LLC is to structure your business such that you can maintain a separate liability for each series.
As a result, the liability of one series won’t affect the others. This would essentially provide additional liability protection to your LLC business. And this would all happen while you’re managing them all with one master LLC.
Here are some other benefits of a Series LLC.
Affordable to Start
You can easily set up Series LLCs with only one filing fee. While the traditional case would require you to start multiple LLCs and pay filing fees for each, here you can easily set up parent and cell LLCs.
Single Tax Return
One of the biggest advantages of Series LLC is that only the parent or master LLC is required to file the tax return. This tax return would include all the cell LLCs as well.
You can save up on administrative time and expenses when you opt for a Series LLC. The reason here is that each cell LLC is administered separately. As a result, you wouldn’t have to centrally administer each one.
Simpler than a Corporation/Subsidiary
As discussed earlier, Corporations with subsidiaries are similar to Series LLCs in many ways. However, the latter is far simpler in terms of taxes, legal paperwork, formalities, and more.
Drawbacks of Series LLCs
While a Series LLC has numerous advantages, it also has a fair share of disadvantages. Let’s take a look at them.
Multiple Registered Agents
One of the biggest cons of a Series LLC is that you’d most likely need to have separately registered agents for each cell LLC. While this may not be the case in every state, it could still add to your expenses if your state requires you to have separately registered agents for each LLC.
Separate Business Bank Accounts
As each LLC in the series would essentially be a separate entity, you’d need a separate bank account for each one. All the cell LLCs would thus have separate financial statements and accounting. This could prove to become a big administrative issue if you’ve got multiple cell LLCs.
Cost of Formation
Yes, Series LLCs are affordable to start. However, that doesn’t make them cheaper than starting traditional LLCs. In some states, you might have to pay a slightly higher fee to start a Series LLC as compared to a traditional LLC.
How to Start a Series LLC?
Now that you know the advantages and disadvantages of a Series LLC, let’s try to understand how to start it.
As mentioned before, only a handful of states currently allow the formation of a Series LLC. So, it’s important to determine if your state permits it.
Additionally, the process of starting a Series LLC varies from state to state.
For instance, in Illinois, you’d have to use a different form for your Articles of Organization. And once these are filed, you can create each individual cell LLC using a Certificate of Designation.
On the other hand, the process is a lot simpler in Delaware. The state offers a registered Series LLC entity.
As a result, you just have to provide the name of one of the LLCs in the series to make it the parent LLC. Post that, you can give a name for the registered series. You’d also have to file a Certificate of Formation that contains the name of the registered agent as well.
Finally, you’d have to outline and sign a detailed Operating Agreement that’s drafted for your Series LLC.
A Series LLC can be a great way to reap the advantages that Corporations have long enjoyed with subsidiaries. It provides you with additional protection from liabilities and lets you run multiple cells LLCs with ease.
The simple administration and taxation requirements make it an attractive bet for traditional LLC owners. However, you’d have to get multiple registered agents for your LLCs depending on your state and open separate bank accounts for them too.
Do you have any questions about Series LLCs and their formation process? Ask them in the comments.