A series LLC is a relatively new form of business entity in which the articles of organization specifically allow for the unlimited creation of separate independent series within the main company. Each series, although held within the original company, operates as a separate entity with its own name, bank account, EIN, books and records, and possibly even different owners. Each series operates independently of the others and as a result provides for the ultimate segregation of assets and business within one entity form without crossover liability (in theory). The absence of crossover liability between different series is the main attraction of this particular form of business entity, especially for real estate investors. Assets owned by one series are shielded from the liabilities associated with assets of another series within the same LLC. A series LLC is similar in concept to a holding LLC owning several single member LLCs. When using a holding LLC, costs are significantly increased with the addition of new LLCs in the form of legal set up fees and annual filing costs. However, the series LLC is designed to minimize costs by avoiding the filing of additional entities to obtain asset segregation.

States Recognizing Series LLCs

Only a handful of states have adopted statutes recognizing this form of business entity. These are Delaware, Illinois, Iowa, Nevada, Oklahoma, Tennessee, Texas, and Utah. This creates problems for individuals who would like to operate with their series LLC in a non-series state. Questions are raised such as: Will just the series doing business in the state have to file as a foreign LLC or will the entire series LLC be required to file? Will a non-series state respect the separateness of each series or treat the entire company as one entity for asset protection purposes? As a new, untested, and not widely adopted business form, this entity may not be a viable asset protection tool at present. In point of fact, to our knowledge, the series LLC has only been tested in one case. In that case, GxG Management LLC v. Young Brothers & Co., No. 05-162-B-K, 2007 U.S. Dist. LEXIS 12337 (D. Me. Feb. 21, 2007), the Court struggled with the series concept and in the end viewed the entity as one LLC.

Taxation of Series LLCs

Uncertainty exists in the federal government about how the Series LLC should be taxed. On October 13, 2010 the IRS issued proposed regulations that will remove much of the uncertainty over the tax treatment of series LLCs if adopted. However, this remains to be seen. Some states, notably California, have taken the position that each series will be treated as a separate LLC when it comes to annual franchise fees – this will not help the cash conscious investor.

Future of the Series LLC

When it comes to asset protection planning, it is often the wiser course to take planning slow and evolve with the law rather than try and chart its course. The Series LLC will eventually have its day and surpass the traditional LLC as the entity of choice, especially for real estate investors. When will that day arrive? The answer is when all states have adopted this business form and court decisions have set a precedence that recognizes its validity.