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Series LLC

A series limited liability company, commonly known as a series LLC, is a special form of a limited liability company that provides liability protection across multiple “series,” each of which is theoretically protected from liabilities arising from the other series. In overall structure, the series LLC is comparable to a corporation with several subsidiaries.

Many people form an LLC in order to protect personal assets from a legal claim relating to their real estate investment or business liabilities. Additional liability protection may be gained by properly forming and maintaining a separate LLC to hold each property or business entity. Theoretically, by forming a separate LLC to own and hold each legally titled separate property or business entity, only the assets owned by a specific LLC would be subject to claims or lawsuits arising against that LLC. However there are costs and administrative burdens associated with properly forming, qualifying, and maintaining each separate LLC.

Another option may be to form a series LLC, also known as a “cell” LLC, if permitted under applicable laws. Although each cell of a Series LLC can own distinct assets, incur separate liabilities, and have different managers and members, a series LLC pays one filing fee and files one income tax return each year if each series member is also a founding member of the LLC. When non-founding members are added to a newly created cell within the series LLC, that new cell should file a separate partnership tax return for that cell. Furthermore, liability incurred by one unit does not cross over and jeopardize assets titled in other subsidiary units of the same series LLC. If a business owns real estate used in its operations, a series LLC may avoid sales tax due on rent paid by the operating series to the real estate series. A series LLC has been described as a master LLC that has separate divisions, which is similar to an S corporation with Q-subs.

The procedure for adding and deleting series is uncomplicated. Additional series can be added by simply amending the series’ “limited liability company agreement” (equivalent to an operating agreement for other LLCs). Under Delaware law, any particular series may be dissolved by 2/3 approval of the ownership interests, or a simple majority if provided for in the operating agreement. This method of liability segregation was initially called the “Delaware Series LLC” because it was first approved in Delaware. Similar legislation has since been passed in Illinois, Iowa, Oklahoma, Tennessee, Texas, Utah, and Wisconsin.