The Unique Type of LLC Your Small Business Should Be Using

This week we’ve gotten to know the best business structures for those going out on their own.  I’ve discussed the benefits of the LLC and the S-Corp. I’ve also shown a way to combine the best of both entities into one business.

I want to end the week highlighting another unique type of business structure that can help you develop several businesses under one umbrella and still provide the ease in administration needed for a small business.

Meet the Series LLC.  

What is a Series LLC?

As the name indicates, the series LLC is a type of limited liability company. But this type of LLC allows multiple members, managers, and assets in separate, independent series. In other words, it’s like having independent subsidiaries of a corporation without the hassle or costs that comes with setting up different corporations.

Each series operates as its own business. It has its own business name, operating agreement, set of books, and can even have a separate manager. Likewise, each series can enter into contracts, as well as sue or be sued independently. For all intents and purposes, each series is its own business, yet they are connected to your master LLC.

Why do you want a Series LLC?

You get several benefits from the Series LLC.

Most notably, each series is protected against liability from another series. Many people use the series LLC for owning separate pieces of real estate, so that each property can stand on its own and a lawsuit, foreclosure, or bad investment on one property won’t affect another.

But you don’t need to confine your series to one type of business. This type of LLC allows you to bring many different ventures under one umbrella. For example, my friend that I mentioned on Monday can have her comic book enterprise as one series, her merchandising as another, and a writing/consulting business under another. With the series LLC you have the flexibility to create the businesses that you want.

Lastly, the series LLC helps reduce costs. Rather than having to set up a separate LLC, with separate filing fees and start up costs, you can create the Master LLC once, and open up each series as you see fit.  

A couple of words of caution

As with regular LLCs, state law dictates what you have to do to create a series LLC.  Currently only Delaware, Illinois, Iowa, Nevada, Oklahoma, Tennessee, Texas, Utah, and Puerto Rico allow series LLCs.  However, some states, like California, authorize series LLCs to register and do business with the state, even though the state doesn’t allow formation.

You need file the appropriate articles of organization and operating agreement in the state in which you choose to set up the master LLC. You can then set up each series by amending the master operating agreement and creating additional operating agreements for each series.

You should also remember to treat each series as a separate company. Maintain separate bank accounts, records, and transactions under the name of the series. Moreover, avoid comingling your personal funds or funds of the master or other series when conducting business.

Still some uncertainty

Since the concept of the series LLC is fairly new (the first was established in Delaware in 1996), the federal tax consequences and legal implications of the series LLC remain uncertain. The IRS issued proposed regulations that govern series LLCs, but those regulations have not been finalized yet.  So proceed with caution and consult a professional in your state when setting one up.

However, if you do it correctly, the series LLC can offer you the protection, flexibility, and cost-savings that can really benefit your small business.