Discover the flexibility and unique benefits of forming a series LLC, a business structure that allows multiple independent entities under a single framework. Read our guide below to learn more about this relatively new business entity type and what kinds of companies can benefit from it.
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Editor’s note: At this time, ZenBusiness does not help with series LLC formations, but we hope this article will provide useful information for anyone thinking about starting one.
A series LLC is a relatively new business structure, introduced by the state of Delaware in 1996. In the years since, some other states have adopted their own series LLC legislation, but it’s not a widespread entity classification. What is a series LLC? How do you form one? Where can you form one?
A series LLC is a unique type of limited liability company (LLC) that allows one overarching LLC (usually called a “parent LLC,” “master LLC,” or “umbrella LLC”) to form smaller, separate series LLCs (often called “cell” or “child” LLCs). In many ways, a series LLC acts much like a large corporation with subsidiaries or a holding company.
The exact definition of a series LLC varies by state, but it involves forming a parent LLC and then designating separate series entities under the parent. These entities have unique names, operating agreements, bank accounts, records, members, and managers. While the structure is similar to a holding company, one of the series LLC’s advantages is that, in most states, each individual series doesn’t have to file separate formation documents. Instead, the parent LLC’s operating agreement defines each series.
One of the primary reasons for a series LLC is that each cell in the series LLC has separate liability from the other series. One example would be a real estate investor who owns multiple properties. Under a series LLC, if one of the properties faces a lawsuit, the other properties would be shielded from that property’s liability. However, these liability protections among the series don’t apply to every state where series LLCs are allowed.
Starting a series LLC varies a bit from one state to the next, but most states follow the same basic procedures. These steps are the basic framework you can expect, but we highly recommend consulting your state’s unique statutes for precise requirements. You may also want to enlist the services of a business lawyer.
Determine if the series LLC is valid in your state. Series limited liability companies are actually a relatively new business structure. And while more and more states have introduced legislation to allow domestic series LLCs, not all states do. Before you get too deep into the process, you should check that a series LLC is allowed in your state.
The following states and jurisdictions allow for the formation of a series LLC: Alabama, Arkansas, the District of Columbia, Delaware, Illinois, Indiana, Iowa, Kansas, Missouri, Montana, Nebraska, Nevada, North Dakota, Oklahoma, South Dakota, Tennessee, Texas, Virginia, Utah, and Wyoming. Puerto Rico also allows them.
A few states, however, may allow a foreign series LLC to do business in their state but won’t allow the creation of a domestic series LLC. California is the most notable example of this.
Choose who will serve as your registered agent. A registered agent is an individual or business entity that accepts service of process and some other official state communications on your behalf. While this role sounds simple, it’s vital. Generally, we recommend hiring a service to fill this role since the registered agent must be present at their listed address during all regular business hours.
When you appoint your agent, be sure to clarify that you’ll be forming a series LLC. They may want to discuss terms and fees for representing the series. The registered agent for the parent LLC serves as the agent for each of the series.
Decide what you’ll call your series LLC. When picking a name, there are several guidelines to keep in mind (most of which vary by state). For starters, your name should be “distinguishable” from the names of other businesses in your state — our free LLC name search tool makes this step easy. You’ll also need to include a designator like “LLC” in your company’s name (different states allow different designators). Many states require you to include the name of the parent LLC in the name of each of the series. Some states might even require you to include “series” in your name.
Many states have other restrictions, such as prohibited words, limitations on what characters you can use, and more. We recommend consulting your state’s guidelines for detailed naming rules.
In many states, series LLCs are required to set up a naming structure for their series. Often, each individual series must contain the name of the parent LLC plus an additional component to differentiate it from other members of the LLC. For example, a series LLC with different restaurants might use “Alicia’s Kitchen” as the name of the parent LLC. Her other locations might take regional tags like “Alicia’s Kitchen North” and “Alicia’s Kitchen South.”
There are many naming structure options available, but it’s important to pick one at the outset to maintain brand consistency.
Draft and submit your formation documents. Now that you’ve picked an agent and decided on your naming structure, you’re ready to file your formation paperwork. In many states, this document is referred to as the “Articles of Organization,” but this varies; the “Certificate of Formation” is another common title. Some states even have a specific formation document for series LLCs.
No matter what the title of the form is, you can expect to provide a lot of basic information about your LLC. In your series LLC purpose statement (or in an additional provision that you add yourself), you should state that the LLC is authorized to create series, too.
Create an operating agreement for the series LLC. An operating agreement acts like a constitution or charter for an LLC; it governs exactly how the business will be run. It defines the management structure, the distributive share of profits for each member, the taxation structure of the business, how to add or remove members, dissolution, and much more.
But for series LLCs, the operating agreement becomes even more important. Not only does the agreement dictate how each individual series operates, but it also defines the LLC’s overarching organization and the relationship between the parent LLC and each individual series. For example, a good limited liability company agreement typically establishes limited liability between each series and clearly defines the jurisdiction of each. This agreement might also describe the differences between memberships for each series.
Our guide on how to create an operating agreement can help take some of the guesswork out of this process.
A single-member LLC’s operating agreement is still vital, even though it doesn’t govern the relationships of multiple members. The operating agreement still defines the future of the business, detailing who will have title to the LLC’s assets if the owner is incapacitated. More importantly, it helps maintain the owner’s personal liability protection by clearly delineating the separation between the single member and the business itself.
As a series LLC, the SMLLC operating agreement is even more important because it clearly defines each series’ business activity and how they will keep assets separate.
Designate which LLC in the series will be the parent LLC. Which LLC will be the parent LLC that governs all the LLCs under it? If you didn’t already designate this in your Articles of Organization, now’s the time to do so.
No matter what state you’re in, you’ll need to include this information in the series LLC’s operating agreement. You may have to designate this in another form, such as the formation documents or an additional filing. The specifics of this process vary from state to state.
Add distinct series to the business. Once the parent LLC is set, you’re ready to assign new individual series to it. The exact method you’ll use to do this depends on your state, though. In some states, you’ll accomplish this by amending your Articles of Organization. Other states require a specific form to add a new series, often called the Certificate of Designation.
Please bear in mind that you will need to repeat the paperwork process anytime you add a new registered series to the business.
Register for an employer identification number for each individual series. An essential aspect of running a series LLC is keeping the finances of each series separate. To do that, each series needs to have its own bank account. And to get a business bank account, you’ll most likely need an employer identification number (EIN). Many banks require this number to issue an account.
An EIN is simply a nine-digit code that acts like a Social Security number for a business. You can obtain one for free with the IRS. Once you have one for each series, you can get a bank account for your individual series.
Once your series LLC is official, you still have an important new federal obligation to fulfill: filing a Beneficial Ownership Information (BOI) report. Starting in 2024, most LLCs and many other small businesses are required to submit a BOI report to the Financial Crimes Enforcement Network (FinCEN). The BOI report is a requirement under the Corporate Transparency Act, enacted to enhance transparency regarding business ownership to prevent illicit financial activities. Entities subject to this rule include many limited liability companies (LLCs), corporations, and others formed by filing with a Secretary of State or a similar U.S. office. The report is meant to disclose information about a business’s “beneficial owners,” who are individuals with substantial control, ownership interest exceeding 25%, or significant economic benefit from the business’s assets.
You’ll first need to gather information on your LLC’s beneficial owners, including their full names, addresses, and identification documents. Then go to the FinCEN website, where you complete a form online or by PDF. There’s no fee to file.
Companies formed before January 1, 2024, must file their report by January 1, 2025. Those created after that date have 90 days from their approval by the state to file, and those formed after January 1, 2025, have 30 days from receiving notice of approval. Failure to file can result in substantial penalties, both civil and criminal, making timely submission crucial.
You can get more information on the FinCEN website. If you need guidance following this new federal requirement, our Beneficial Ownership Filing service can help.
Once you’ve established your series LLC, there are a few general guidelines you’ll want to follow to stay compliant and successful.
One of the biggest draws to creating a series LLC is that each LLC within the series is usually protected from the liabilities of the rest of the LLC. But to keep those liability shields intact, each LLC must be treated as a separate entity. That means separate books, separate bank accounts, separate financial records, separate member meetings — everything is distinct.
If there is any commingling of property, the whole series can be compromised. At worst, individual members might even be held liable. But by maintaining fully distinct LLCs, those personal asset protections can usually be maintained.
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Depending on your business type and the state you’re in, you may need to obtain certain licenses and permits for your business. And often, each LLC in the series needs to have these. For example, some states require a statewide business license. In other cases, an LLC might need to get an industry-specific license. Or each series might have to get a local license specific to the city they’re in.
In short, licensing requirements will vary, even within a series LLC. It’s imperative that you obtain the appropriate licenses for each series within the business to operate legally.
Every series LLC must comply with all ongoing requirements for LLCs in its state. This might include filing annual reports, paying annual taxes, and complying with all local and state regulations.
When you first start out, we recommend consulting with your state agency to learn what the filing fees and annual requirements are. That way, you’ll know exactly what to expect going forward.
The IRS has issued regulations to treat most series LLCs as separate entities from their owners for taxes, but some states may treat them differently. In most cases, the LLC itself isn’t a taxable entity unless it elects that status on the federal level. The most notable exception is an insurance business.
Typically, the members of each individual series will report the business income on their personal tax returns. That said, if one series elects to be treated as a separate entity for tax purposes (such as a corporation), then it will file its own income tax returns.
The IRS proposed a rule in 2010 that would definitively require each series in a series LLC to be taxed separately at the federal level, but this has not been officially adopted yet.
One benefit of a series LLC is that the business owner doesn’t have to pay the filing fees to form several different business entities. You have to file only one Articles of Organization form (or similarly named document) and pay the fee to start your master LLC, which is great for a small business. However, some states now require each series to file a “certificate of designation” or “certificate of registration,” register a name and registered agent, and file annual reports. Any of these documents may be accompanied by filing fees, which reduces the cost savings inherent in this business model.
When properly formed and maintained, each series entity is theoretically shielded from the debts of the other series entities. To make this work, each segment in the series must strictly operate as a separate entity. If these entities start to share funds or make joint management decisions, they may be denied liability protection.
Not all states allow this shielding, though, so it’s important that you carefully analyze the rules in your state. Additionally, courts haven’t rigorously tested this liability protection, so think carefully before deciding if a series LLC is the right choice for you.
Because series LLCs are still so new as a business entity, courts are still deciding how to treat them in lawsuits. So, the liability protection you get from a series LLC may not be as strong as you hope.
The tax law governing series LLCs isn’t settled in many states. In some states, only the parent LLC pays taxes. In others, each series may be subject to tax liability. The Internal Revenue Service hasn’t formally addressed series LLCs but has suggested in proposed regulations that each series be treated as an individual entity formed under state law.
The liability of each series during bankruptcy proceedings is also unclear. Creditors may be able to go after the parent entity, other segments in the series, or even the owners’ personal assets.
It’s also important to note that expanding a series LLC into another state might not be possible. Some states allow foreign entities to qualify as a series LLC, but not all do. If you plan to expand into other states, another business structure might be a better fit.
In general, the series LLC operates in much the same way as a standard LLC when it comes to registered agents. With any LLC, you’ll need to designate a registered agent to provide the government with a reliable point of contact for your business.
The registered agent’s role is to accept important document deliveries from the state — such as service of process, important notifications from the state, etc. — on behalf of your business. Each time your registered agent receives a delivery, they should immediately inform you of the delivery, then forward the document to your business location.
With a series LLC, you can typically just designate one registered agent for the entire series. If you’re using a registered agent service, it’s possible that the service will charge you more than it would for a typical LLC, but legally speaking, you do not need to designate a separate registered agent for each segment of your series LLC. However, we will note that if your series LLC operates in more than one state, you will need to designate a registered agent in each state.
You certainly can, and we strongly recommend doing so. You are legally allowed to serve as your own registered agent in all states, but this comes with some major disadvantages, such as privacy concerns and the risk of missing an important document delivery.
When you hire a registered agent service, any service of process will be served through your registered agent service rather than your business, which eliminates the risk of being served in front of your customers or employees.
The biggest benefit in our opinion is that you won’t have to worry about being present at your business address for all standard business hours. Process servers will deliver documents between the hours of 9 a.m. and 5 p.m. in most states, and if you serve as your own agent, you’re legally required to be available during those hours to receive service of process.
There are many reputable registered agent services available, and you can take a look at our extensive guide to the best registered agent services if you’d like.
At this time, ZenBusiness doesn’t do series LLC formations, but we do offer many other services to help you run and grow your series LLC. We can help you secure an EIN, get a registered agent, and stay compliant. Starting a business doesn’t have to feel like a massive undertaking. Here at ZenBusiness, we tackle the busywork so you can focus on what really matters: your business.
Articles Related to Series LLC
Definition of a Series LLC
What’s the difference between an LLC and a series LLC?
On the surface, there’s little difference. Both legal entity types operate in very similar ways. The primary difference is that the standard LLC is an isolated, single entity. A series LLC is like a family of LLCs; each family member — each child series — operates independently, governed by one overarching parent LLC.
Is a series limited liability company a good idea?
That depends. Series LLCs require perfect bookkeeping and separation between each individual series. If a business owner can accomplish that (or hire someone to), then a series LLC might be a good fit. But if bookkeeping isn’t the owner’s strong suit, completely separate LLCs might be a better choice.
What is an example of a series LLC?
A commonly-cited example for a series LLC is a real estate investment company. Let’s say a real estate investor decides to form a series LLC. The parent LLC is created, and then a series company is created, and each series owns a different property. Since every series is individually liable for its own business assets, if something happens to one property, the others usually won’t be touched. (At least, this is the case in most states that allow series LLCs.)
In contrast, let’s say the real estate investor had only one LLC that owned all the properties. If the LLC was sued for damages that happened at one property, some of the other properties could be taken to pay the difference.
Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.
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