A master LLC is an LLC that is owned by another LLC, often used to create a holding company structure to own and manage other LLCs and investment properties.
Series LLC Explained
A series LLC is an entity where each series acts as a separate LLC for liability protection, similar to a cabinet with multiple compartments, allowing owners to separate assets and liabilities of businesses under one entity. A protected series in a series LLC is insulated from the debts and liabilities of all other series. Series LLCs have become popular for holding income properties, with investors holding title to each property in its own protected series. Each protected series within a series LLC has its own liability shield.
Delaware was the first state to invent the Series LLC in 1997, allowing one LLC to have compartmentalized liability protection for its various parts.
Real estate investors favor series LLCs because they offer a structure where each series owns a separate property, reducing the risk that a lawsuit against one property will impact the others. They are formed like a regular LLC, with articles of organization that must specifically allow for the formation of series. The resulting series can go by various names: cells, containers, divisions, subsidiaries, or units.
A master LLC holds separate LLCs that are treated as separate entities, each with its own accounts, agreements, protections, members, and names. This structure is chosen for its enhanced liability protection among the subsidiaries. However, despite the benefits, series LLCs do require fees for each subsidiary and may introduce more administrative work. It is also important to note that some states do not permit the formation of series LLCs.
Differences Between Standard LLC and Series LLC
The main difference between a standard LLC and a series LLC lies in the structure for liability protection and management of multiple properties or entities. A standard, or master, LLC owns another LLC, which can serve as a holding company for other LLCs and investment properties.
In contrast, a series LLC consists of separate LLCs within one overall entity for the purpose of isolating liabilities. Each ‘series’ in a series LLC operates like an independent LLC with its own liability shield, yet remains part of the larger entity.
While each structure has its advantages, the choice between a standard LLC and a series LLC will depend on the specific needs and goals of the business owners, as well as the legal allowances of the state in which the LLC is formed.