What Is a Series LLC?

A series limited liability company (LLC) is an LLC that is operating under a parent LLC in a manner that protects the parent company from liability for its debts. Each series LLC has its own members, bank accounts, and debts and liabilities that are separate from other series LLC and the parent.

Series LLCs are a relatively new type of business entity and it is still unclear whether they will be treated as separate from their parent for tax purposes.

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Key Takeaways

• A parent LLC’s operating agreement will list a series LLC.

• Not every state allows a traditional LLC to form a series LLC.

• A series LLC has separate bank accounts, members and managers, and books and records from the parent LLC and other series LLCs.

A Series LLC’s Structure

A series LLC is a branch of a traditional LLC, similar to corporations having subsidiaries. A traditional LLC’s operating agreement should state that a series LLC is a part of the parent LLC, but most states allow the creation of many separate series at any time — based on the needs of the parent LLC.

How a Series LLC Operates

A series LLC provides a parent LLC with protection from liability for the activities of the series LLC.

A series LLC operates as a separate entity from its parent LLC. So, a series LLC can enter into separate contracts from the parent. A series LLC may also have its own group of members. Since a series LLC has a separate group running the show, the series LLC also has a separate bank account and keeps separate books.

A series LLC can enter into contracts separate from the master LLC. Because the series LLC is a separate entity from the parent LLC, the members of the parent LLC have liability protection from the debt and obligations of the series LLC.

To illustrate, a business owner is a real estate investor with several properties. He forms series LLCs for each of his properties: St. James Place, Park Place, and Baltic Avenue. If someone sues Park Place, they can only go after the assets in Park Place, not the other properties or the parent LLC.

States and Territories That Allow a Series LLC

• Alabama

• Arkansas

• Delaware

• District of Columbia

• Illinois

• Indiana

• Iowa

• Kansas

• Missouri

• Montana

• Nevada

• North Dakota

• Ohio

• Oklahoma

• Puerto Rico

• South Dakota

• Tennessee

• Texas

• Utah

• Virginia

• Wisconsin

• Wyoming

California state law does not recognize the series LLC structure, but it allows a series LLC formed in another state to operate in California. However, the California Franchise Tax Board (FTB) requires each series LLC to file its own tax return and pay a minimum $800 annual franchise tax, making it cost prohibitive for multiple series.

Minnesota allows for series LLC formation but does not afford each separate series limited liability protection. Each series may be liable for the other series’ liabilities so it does not offer the same advantages as series LLCs in other states.

Tax Treatment for Series LLCs

There is no definitive tax treatment for series LLCs. The IRS may allow the parent and all the series to be taxed as a single entity for federal tax purposes. However, each series may elect its own separate tax classification such as a disregarded entity, partnership or an S-corp.

Get Legal Help With Series LLCs

If you have any questions about forming series LLCs or if it is the right structure for your business, contact a local small business attorney today.

Internal Links

• LLC Member Tax FAQs