Series LLC

Housing InvestmentWhat is a series LLC?

A Limited Liability Company is a legal entity formed with the purpose of shielding the owner(s) from liabilities relating to the business. A series LLC groups numerous LLCs into different internal series under one parent LLC. Each series may have its own distinct business ventures and members and is shielded from liability from the other series.

Who may benefit from a series LLC?

In general, business ventures that generate passive income (income that does not come from an active role in the business) can benefit from being a LLC.   LLCs, for example, are great for real estate investment. Those who have or plan to have multiple LLCs to limit liability between different investments may benefit from a series LLC. A series LLC would allow an investor or business owner to combine all LLC filings under one parent LLC, which can greatly reduce administrative costs. Owners have the flexibility to place multiple types of business ventures under this one legal entity, while limiting liability between each venture. If one series in such an LLC is ever in a lawsuit, Nevada courts will recognize that each series has limited liability with respect to the other series. It is, however, unclear whether courts in states that do not recognize series LLCs would respect the series.

Potential disadvantages?

Start-Up and Tax Issues: While a series LLC has greater long term administrative cost reductions, it may cost more in the short term because of higher start-up fees. In addition, some CPAs are not familiar with the relatively new series LLC and may not understand its tax implications.

Bankruptcy: It is unclear under federal law if a series LLC would be treated as an individual with the right to file for bankruptcy independently. The principle of substantive consolidation may also be a later issue in litigation. Under Section 105 of the bankruptcy code, Judges have the ability to combine assets from distinct legal entities of the same owner to pay debtors.

Complexity: As a series LLC may have distinct interested parties in each LLC with different business ventures, careful structuring of the series is essential.

For a properly formed series LLC please visit Drinkwater Law Offices.