Understanding the Structure of a Series LLC
A Series LLC is a type of legal structure that allows businesses to create separate but individual and distinct series within the same legal entity. Each series can have a separate company entity and can be treated independently for assets, liabilities, contract obligations, and financial purposes. It offers entrepreneurs the ability to establish multiple limited liabilities without having to start multiple businesses.
Advantages and Disadvantages of a Series LLC
The advantages of a Series LLC include:
- Flexibility: Each series can be tailored to its own specific purpose and goals, allowing for greater flexibility in terms of organization, business operations, and decision-making.
- Costs: As it eliminates the need to form multiple companies, the startups and operating costs associated with starting a new business are eliminated.
- Asset Protection: Each series can be insulated from other series, offering a greater degree of asset protection in the event that one series runs into trouble.
With any structure, there are also important limitations to consider, such as:
- Compliance Requirements: Depending on the state, there may be certain requirements to be aware of, and all series must comply with the governing laws of the states where the business is located.
- Risk of Piercing the Veil: To a certain extent, all series are linked to one another, and there is a potential risk of the court “piercing the veil” and going after the assets of other series in the LLC.
Legal and Tax Implications of a Series LLC
In terms of legal implications, each series of a Series LLC can generally exist independent of the other series, with its own members, employees, and taxes. However, it’s important to be aware that each series still has to comply with the laws of the state where it is located.
In terms of taxation, all income, gains, losses, deductions, and credits of the LLC will pass through to all series, based on the properties and businesses owned by each series. The LLC is typically treated as a disregarded entity and is not required to file a separate federal income tax return.