What is Series LLC ?

 The right of an LLC to conduct business in a state other than the state of organization generally is obtained only by properly registering to do business in that state as a foreign LLC. Failure to register generally precludes a foreign LLC from conducting business in the state and can result in an inability to enforce a contract, to sue for collection of a debt, or to have other similar rights.In some states, a foreign LLC's failure to register before transacting business in the state can invalidate the limited liability of members or subject the LLC and its members to substantial civil penalties. Transacting business in a state can create a variety of filing and tax obligations for an LLC. The LLC may become liable for franchise fees or taxes, sales tax collection and payment and, of course, income taxes (on the LLC's owners) Failure to recognize when these obligations arise can result in substantial penalties for the noncompliant LLC.

  The use of single-member LLCs to hold single pieces of real estate or to conduct a single business, thereby isolating liability in a single-purpose entity has proven somewhat cumbersome and expensive since each single-member LLC must be registered in the state. However, that problem can be solved by the creation of a “series LLC” A series LLC is a single entity with multiple “buckets” or “series,” each of which is treated as a separate entity, even though each bucket or series is really part of the same entity. Different classes of members, different membership rights, and different managers can be created for each series, independent of any other series. Further, since each series is treated as a separate entity, cash distributions can be made from one series to its members without regard to the performance of any other series in the LLC. 

 

  Additionally, each series segregates liabilities. Consequently, security for the liabilities associated with one series in the LLC is limited to the assets of that series. However, to obtain this protection, each series must be maintained separately. Separate books and records must be kept, and the assets must be treated as separate assets from any other LLC holdings. Additionally, creditors must generally be advised that the “series” structure is being used by including the structure in the state filings. Another advantage of the series LLC is that only the parent entity needs to be registered to conduct business in a state. To date, Delaware, the District of Columbia, Illinois, Iowa, Kansas, Nevada, Oklahoma, Tennessee, Texas, and Utah have created this type of entity.

 Other attributes of a series LLC can include (a) a separate business purpose, (b) a limitation that a distribution or liquidation is applied solely to the individual “bucket” or “series” and not to any other bucket or to the LLC in general, and (c) a provision that a member's withdrawal from one series does not cause a disassociation from any other series or from the LLC. From an operational standpoint, the termination of a series will not cause the termination of the LLC.

 Note: To qualify as separate entities, each series of a series LLC must comply with certain requirements including identifying each series, holding the assets of each series separately, and maintaining separate records for each series.