Series LLC: a flexible umbrella company
If you own several different companies, franchises, or properties the management overhead can be considerable. When they are set up as independent entities the fees and filings take up a lot of manpower to remain current. One alternative, keeping everything as a personal asset, means that you assume a tremendous amount of liability.
For many owners of multiple businesses, the Series LLC is the perfect solution. It is one company under Tennessee law that separates each independent business or property into its own legal entity for the purpose of liability but remains one for filing and taxation. It is certainly a good option for anyone who wants to protect their assets without a lot of headache.
What is a Series LLC?
The Series LLC is very much like any other LLC in that it is a separate legal entity that is defined by its charter. It may have multiple owners, a single owner, or even be owned by a trust. It operates as a “pass through” for taxation purposes to its owners, who declare the income on their personal taxes.
As a distinct legal entity, it shields its owners from liability from its operations.
The Series LLC is distinct in that it allows the creation of a “series” or separate legal entity that is still held entirely by the parent LLC. It remains one company, but each series has its own liability and, under Tennessee law, its own responsibility for franchise and excise taxes. Yet there is only one annual filing for the LLC and one stated income.
When is it beneficial?
If you have multiple businesses or properties, each series you define has its own liability. In the event of a lawsuit or catastrophe, the potential loss is limited to that particular series.
Each series can be formed and reorganized as you see fit. If you buy a new property, for example, you create a new series and it will become a separate legal entity for the purpose of liability.
All income still flows to the parent LLC which has only one annual filing. If some businesses or properties are generating a loss, they can be offset by the profitable series in the same LLC.
It is also possible, as with any LLC, to have the Series LLC owned by an anonymous trust and shield all of the assets under its control from the prying eyes of the public for the purpose of registration.
What is the downside?
The main reason why a Series LLC is not often used is that each series has to have its own meticulous record keeping. It has to be treated as a stand-alone business in order to maintain its status as an independent entity for liability. That does not necessarily suit every business owner and there is still considerable overhead.
Another reason is that while Tennessee law recognizes the Series LLC, not every state does. Ownership of property in a state which does not recognize a Series LLC can be complex, and may require the formation of a local corporation under that state’s laws. It is no longer simple and clean.
How do I start?
The Series LLC is one option for the owner of multiple properties. The only distinction is that it must be specified as such at the time of filing with the Tennessee Secretary of State’s office.
It is always helpful to have an experienced business law attorney set up the charter of an LLC, and that is especially true for a Series LLC. The advantages are many for those who have many properties to protect and the Series LLC is worth considering as an option.