Series LLC: A Good Option for Your Multiple Businesses?
Series LLC: A Good Option for Your Multiple Businesses?
As your business grows chances are that you may need to make certain important decisions regarding the business. One of these decisions will likely revolve around the legal structure of the business. This may be as a result of taking on one or more new business partners, selling some of your stake in the business, venturing into a different industry or country, among others.
When it concerns going into a new business vertical or diversifying the business, one of the things you should consider doing is registering a new business entity for this new business or product. So while you likely may have formed an LLC or other business entity type like a corporation for your current business venture, there are several reasons why you might want to keep any new business unit separate from the existing one, and one common reason for this is to segregate the assets and liabilities of each entity.
If this is a viable option for you and your specific circumstance, then a Series LLC just might be the solution for you.
What Is a Series LLC?
Sometimes, when an individual or company has multiple assets or wants to diversify, they often form separate legal entities for each asset or create several LLCs. In other words, register a separate LLC for each asset. Fortunately, some states provide for a sort of asset protection known as the Series LLC. This is a type of Limited Liability Company that is made up of one ‘master’ LLC and one or more other LLCs or members, where each one is separate from the other in that it has its own rights, liabilities, duties, and more. Perhaps one of the biggest advantages of a Series LLC is the ability to save on the cost and hassle of forming multiple LLCs for every asset you own, while also being able to insulate each of them from the risks and liabilities of other LLCs in the series, which is an equally important feature or advantage.
Essentially, a Series LLC helps you keep all your assets under one roof but with each asset having its own veil of liability protection.
Of course, Series LLCs were not always an option for business ventures. They were first created under Delaware state law as a way to simplify structured financial transactions or joint investments like mutual funds. Over the years, Series LLCs have found their way into other forms of business ventures and have also been accepted by more states. Although Series LLCs can’t be registered in every state, some states will recognize those that have been registered in other states and preserve their liability protection.
It is important to state that even though there might be some similarities between the two, a Series LLC is not the same as a company with subsidiaries.
Reasons You Might Want to Consider a Series LLC
Apart from the obvious benefits of saving cost and reducing the hassle of forming separate LLCs for each business asset, the Series LLC also offers certain flexibility which has made it quite popular in some sectors like finance and insurance. Also, this is a business structure that might be greatly beneficial to startup companies that might be preparing for an IPO. Besides these, there are some other reasons why a business owner might want to consider a Series LLC, some of which are:
Separate Business Objectives
In addition to enjoying limited liability status, each series is free to conduct its own business objectives and have separate policies as well, which might be different from those of another entity in the series. It can hold its assets as well as have separate members from the other companies.
This dichotomy makes it possible for a business owner to have totally divergent business pursuits without going through the rigors (and cost) of registering separate entities or jeopardizing the entire business operations of one entity because of the risk and liabilities that another entity has.
Single and Simpler Taxation
Furthermore, a series LLC is not taxed differently, but assessed as a single entity for Franchise Tax and Registered Agent Fee purposes. Because Series LLCs are not treated as separate LLCs for tax purposes, it is a path that holds quite an attraction for business owners.
Less Administration
A Series LLC technically and legally may contain several entities, but they can all be managed or administered centrally.
Asset Protection
Each LLC in the series is seen as a separate and individual entity, even though it is part of a ‘family’ of LLCs, as previously mentioned, As such, the debts, liabilities or judgments against one member of the series will not be applied to another member, provided, there is no legal reason to pierce that corporate veil in the same way that it can happen with a regular LLC.
Are Series LLCs Too Good to be True?
This is a really important question to consider because even though Series LLCs seem like a fantastic option for multiple businesses, they are often fraught with problems.
First of all, this form of business is not recognized in all the states of the USA. Currently, you can only form this type of business structure in about 16 states, as at the time of this write-up. This means that complications can easily arise for a Series LLC when it is conducting business in a state that does not recognize this structure
Secondly, though some other states might recognize a Series LLC, it is not certain that they will uphold the limitation of liability of the cells. This could pose a huge risk particularly in states that have no guidelines for the forming or running of the business in this form.
Finally, this structure is largely new and has not been tested in court. Therefore, even though it might be formed in a state that recognizes this unique structure, the court in another jurisdiction might decide to not recognize the limited liability status of each cell.
There is no doubt that forming separate cells under an existing business registration sounds like a smart business decision. Yet, in many cases, the risks seem to outweigh the benefits, making it a decision that a business owner needs to think through thoroughly and if necessary seek relevant professional advice.
So, is a Series LLC a good option for your multiple businesses?
To be honest, it is difficult to say if forming a Series LLC could be the best option for your multiple businesses. This is mostly because it will largely depend on each individual case as the industries and assets in question play a vital role. Your best bet would be to speak to a business attorney who has experience with Series LLCs.
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