A Series LLC is a special form of a limited liability company that allows for the separation of assets and operations into independent compartments or series. Differing from a traditional LLC, a Series LLC consists of a master LLC and one or more individual series branching off from it, each with its own assets, members, and liabilities.
Formation and Maintenance
In Tennessee, each child series’ name must include the name of the parent LLC, and restricted terms may require additional documentation. Despite the potentially low upfront costs of formation, the practical effect might lead to higher overall expenses. Adequate maintenance of a Series LLC in Tennessee ensures that each series is granted separate liability protections, safeguarding individual series from the liabilities of the master LLC and other series.
Tax and Liability Benefits
Taxation
A series LLC is taxed as a single entity, with each series considered a separate division for tax purposes. This approach is distinct from how a regular LLC may be taxed, with the latter having options to be taxed as a pass-through entity, or as a C-corporation or S-corporation.
Asset Protection
For liability and asset protection, each series of a Series LLC is treated as a separate entity, enabling the isolation of different assets and liabilities. On the other hand, a regular LLC provides asset protection for the LLC’s and member’s assets collectively, not individually for different assets of the LLC.
Formation and Maintenance Complexity
Compared to setting up a regular LLC, establishing a series LLC may involve more complex and costly setup and maintenance due to additional steps and paperwork.
Disadvantages and Considerations
Potential Disadvantages
While there are clear advantages to forming a series LLC, some disadvantages exist, including unresolved tax issues. The IRS’s stance on each series being taxed separately may vary, affecting state taxes and requiring extensive recordkeeping for tax purposes.
In some states, like California, series LLCs cannot be formed, but those from other states can register to do business within the state. The complexity of series LLCs can become an issue as business grows, making a standard LLC more desirable for its simplicity.
A Series LLC offers unique advantages and raises important considerations for entrepreneurs and business owners in terms of legal structure, liability protection, and tax implications. If you’re evaluating the potential for a Series LLC for your multiple business ventures or investments, it is vital to understand the nuances associated with this type of structure.