Many of our clients, especially real estate investors, have heard of the Series LLC. However, the Series LLC seems to have a bit of a mysterious aura that keeps it from being understood. I think this comes from the fact that the Series LLC is relatively new (Delaware was the first state to adopt the Series LLC – in 1996, and many states have adopted it within the last 5-10 years), as well as the fact that only about 1/3 of the states have a Series LLC statutes and those statutes are not in any way uniform. Additionally, Series LLC’s do not receive any sort of standard treatment when used in non-Series LLC states.
All of this sort of makes the Series LLC “a riddle wrapped in a mystery, inside an enigma” as someone famous once said. So, let’s try to peel back the layers a bit
What the Heck Is a Series LLC?
The Series LLC is a species of LLC in which there is a “Parent” LLC that is formed and registered with the state. The Parent LLC’s formation documents permit the LLC to create separate and distinguishable “Baby” LLC’s within its structure.
Ok. Why in the World Would I Want One?
Well, the nice thing about a Series LLC is that when correctly formed and operated, it provides limited liability protection not just between the owner and the Parent LLC, but between the Parent LLC and each of the Baby LLC’s, and between each of the individual Baby LLC’s themselves.
The most common use of a Series LLC is for a real estate investor who owns multiple rental properties in a given Series LLC state. That real estate investor can establish a Series LLC with a separate Baby LLC for each rental property, deed each individual property into its separate Baby LLC, and establish a bank account for each Baby LLC and receive income and pay expenses for each separate property out of its own separate bank account.
At this point, if a slip and fall or some other liability occurs on one of the properties deeded into a Baby LLC, only that baby LLC’s assets (the property itself and the funds in that Baby LLC’s bank account) will be at stake in a lawsuit. The assets belonging to the other Baby LLC’s, the Parent LLC, and the owner(s) personally, will not be available.
The difference between the Series LLC structure and just establishing a separate standard LLC for each property is that (in most cases) only the Parent LLC is filed and renewed at the state level. This means that only the Parent LLC is paying filing and renewal fees. The proof of the existence of the Baby LLC’s is in the Company’s Operating Agreement and other underlying documents.
Sweet! Where Is the Series LLC Available?
Sixteen jurisdictions with electoral votes (I’m taking Puerto Rico out of the mix) have LLC statutes that have provisions for Series LLC’s. I have listed them below, with some information about naming and filing requirements for each. Please note that for the sake of clarity, we typically advise clients to include the name of the Parent LLC when naming Baby LLC’s:
- Alabama: The home of the defending National Champion Crimson Tide entered the Series LLC fray last year. Alabama does not require the Baby LLC’s to be registered at the state level, and has no specific naming rules.
- California: Just kidding! The Golden State has a long and storied tradition of avoiding innovation in this area of the law! If you try to bring an outside series LLC to California, the Franchise Tax Board has warned that they’ll charge you $800 annually per series doing business in California. They’re not saying the series are valid in California, but if you try it is $800 annually for each.
- Delaware: The First State was also the first to adopt the Series LLC, in 1996. In keeping with its business-friendly tradition, Delaware does not regulate Baby LLC names or require them to make any particular state filing.
- District of Columbia: Our Nation’s Capital requires the name for any Baby LLC to include the name of the Parent LLC. In addition, the name of each Baby LLC must be filed with the District.
- Illinois: The Land of Lincoln has the distinction of having the most stringent (and expensive) requirements for Series LLC’s. Every Baby LLC’s name must begin with the name of the Parent LLC, and a separate “Certificate of Designation” for each Baby LLC must be filed (and renewed each year).
- Iowa: The Hawkeye State requires that the name of any Baby LLC include the name of the Parent LLC. However, it does not require any separate Baby LLC filing.
- Kansas: Like Illinois, the Sunflower State requires a separate “Certificate of Designation” for each Baby LLC. It also requires that the name of each Baby LLC include the name of the Parent LLC.
- Minnesota: The LLC statute for the Land of 10,000 Lakes makes mention of Series LLC’s, but doesn’t provide Baby LLC’s with any limited liability protection from each other of from the Parent LLC. Sort of defeats the purpose, right?! So for all intents and purposes, Minnesota is not a Series LLC state.
- Missouri: The Show Me State calls for all Baby LLC names to include the name of the Parent LLC, and requires a separate filing for each Baby LLC.
- Montana: Big Sky Country has a, shall we say, quirky Series LLC statute. The law calls for Series LLC’s to have and file a separate Operating Agreement for each Baby LLC with the Articles of Organization. As such, this is not a popular structure and is one I would avoid until the law is improved.
- Nevada: The Silver State does not have name requirements for Baby LLC’s, and does not mandate any additional filings for Baby LLC’s.
- North Dakota: See Minnesota, its neighbor to the east.
- Oklahoma: There are no additional naming or filing requirements in the Sooner State.
- Tennessee: The Volunteer State does not impose and additional filing requirements or name restrictions.
- Texas: Everything’s … different in Texas. While the Lone Star State doesn’t have any naming restrictions or require a Certificate of Designation for Baby LLC’s (like Illinois and Kansas do), it does require the filing of a “Certificate of Assumed Name” – which is essentially a DBA – for each Baby LLC.
- Utah: The Beehive State requires Baby LLC names to include the name of the Parent LLC. However, there are no Baby LLC filing requirements in the state.
- Wisconsin: See Minnesota and North Dakota. Something’s in the water in the upper-Midwest.
Can’t I Just Set Up a Series LLC in One of These States and Use It to Own Property Elsewhere?
Because the Series LLC is so new (in legal terms), there is very little developed case law about how the structure will be treated in states without a Series LLC structure. Because of this uncertainty, we do not recommend clients use a Baby LLC to own property in a non-Series LLC state.
What’s the Bottom Line?
The Series LLC can be a great option in order to get the limited liability protection of multiple LLC’s without the need to file and renew multiple full-blown LLC’s with the state. However, the Series LLC is a complex beast and we suggest consulting with a knowledgeable attorney before taking the plunge.