Series LLC – A Comprehensive Guide in 2022
- 1 What is a Series LLC?
- 2 Benefits & Drawbacks of Series LLC
- 3 Which Business Needs Series LLC?
- 4 What is the Difference Between Traditional LLC & Series LLC?
- 5 How to Change LLC to a Series
- 6 Which States Allows Series LLC?
- 7 Forming Series LLC
- 8 How is a Series LLC Taxed?
- 9 Conclusion
What is a Series LLC?
A Series LLC is a Single Limited Liability Company divided into several series. Each series is treated as a separate legal entity and has its own assets, members, and liability limitations. That means that if one series is issued, the others aren’t affected.
Benefits & Drawbacks of Series LLC
Series LLCs have some benefits and drawbacks, the most prominent of which are:
Benefits of Series LLC
- The Series LLC structure provides privacy for each of your LLC assets from judgments against the others.
- Registration with the state is not mandatory for the child LLC. Activities of a child LLC are not taxed. It means that only one annual fee is needed for the series instead of several fees.
- A series LLC has fewer formalities than a corporation, including less paperwork and tax forms to fill out.
- A Series LLC can make it easier for you to secure bank loans and business funding.
- You can incorporate as many limited liability companies as you wish; however, each LLC must be separately administered. A series LLC allows you to save on the time and expense required to administer the separate entities.
Drawbacks of Series LLC
- Compared to a traditional LLC, Series LLC is more time-consuming and requires more paperwork.
- If you have several limited liability companies in a series, each LLC must have its own registered agent in your state. This can add up to a lot of expense.
Which Business Needs Series LLC?
If you own rental property business and Series LLC is the best option for your business. Because the liability would be limited to that one property and not everything you own under the entire company, if one renter sues you for something that happens on your property, there’s a good chance that you won’t have to worry about having to pay up for every other property.
In short, A Series LLC can protect your various business interests from each other financially.
What is the Difference Between Traditional LLC & Series LLC?
A Series LLC offers you all the advantages of a traditional LLC like limited liability and tax flexibility but a series LLC added more flexibility and protections for multiple businesses under the umbrella of one company.
How to Change LLC to a Series
Converting an LLC to a series LLC can take several legal steps. Each state has different laws about how to convert an LLC and it may be complicated if your state does not allow the formation of a series.
Which States Allows Series LLC?
States like Delaware, Illinois, Iowa, Nevada, Oklahoma, Tennessee, Texas, Utah, and Puerto Rico have passed laws allowing series LLCs.
Some states like California do not allow you to form a series LLC but you can create a series LLC in states that permit the formation of series LLC and conduct business in states that do not allow you to form a series LLC.
Forming Series LLC
To form a Series LLC, follow the same process as you would create a traditional LLC. You will have to follow these steps:
Pick a Name for your LLC
The first step to forming an LLC is to select a name for your LLC. Generally, you will need to follow this naming instruction:
- You must include the word limited liability company or LLC in your company name.
- You have to avoid restricted words such as a bank, trust, Law, Attorney, etc.
- You should not include such words in your company name that confuse your LLC with a government agency.
- I also recommend registering your LLC name’s web domain even if you do not want to create your business website today.
Hire a Registered Agent for your LLC
The next step to form an LLC is to appoint a registered agent. A registered agent is also known as a statutory agent or resident agent.
A registered agent is a person or a company who sends and receives legal papers on behalf of your LLC. These legal papers include official correspondence like legal summons and filing documents.
Your registered agent must be a resident of a state where you want to start your LLC. If your registered agent is an individual, then he will be a member of your LLC along with you.
File your Certificate of Formation
The next step you have to do is to file the formation documents with your Secretary of State. These documents are known by various names, most commonly this document known as Certificate of Formation. It describes the organizational structure of your business.
Draft your Operating Agreement
An LLC operating agreement is a legally binding business document that entails the ownership of its members, how the company is managed, and the structure of the LLC or limited liability company.
It can provide details such as one meeting being held naming a registered agent, selecting managers, and adding and dropping members.
An operating agreement is not required in every state, but it is highly recommended to have an operating agreement to avoid internal disagreements between LLC members.
Apply for your Business Tax ID
The last step is to apply for your business tax ID which is also known as Employer Identification Number and Federal Tax Identification Number.
What are the Purposes of EIN?
- An EIN is necessary for your business tax purposes.
- It is also required to open a business bank account in the United States.
- It is also needed when you want to hire employees legally.
Applying for an EIN is quite simple and free of cost. You can quickly obtain this by visiting the IRS.gov website.
How is a Series LLC Taxed?
Each state has its own rules for how it treats series LLCs. The IRS has discussed a series LLC, and they are writing regulations as we speak. The latest (2009) IRS proposed regulation is that the series LLC be treated as a state entity for tax purposes. The IRS could add regulations to change this rule in the future.
After conducting thorough research on this topic, I’ve put together a guide to help you learn about Series LLC. Hopefully, this guide will enhance your knowledge and find it helpful for your business.