Only a few states allow businesses to create a series LLC. However, some states permit you to do business in their jurisdiction, as long as you register with them.
One of the most common questions businesses ask is, “what is a series LLC?” It’s a relatively new tool that allows the parent LLC to diversify quickly. Each of the series LLCs has its distinct assets and liabilities. A protective barrier insulates the other LLCs if the asset of one cell is subject to judgment as a result of litigation.
When Should You Convert to a Series LLC?
Now, as we have the answer for what is a series LLC? The next question is why series LLC and its benefits.
- You can set up as many cell LLCs as you want.
- It’s not as complicated as setting up a subsidiary. For instance, you won’t concern yourself with corporate records or the other complexities involving structure and taxes.
- The cost of a startup is very affordable. In most cases, you only need to pay the filing fee. The lawyer who specializes in series LLC can prepare the documents but, still, the amount involved is less compared to setting up separate LLCs.
- Each of the assets of the series LLC is protected from litigation or judgments involving other cells.
- You will only register the master LLC. You will appreciate this during the annual or biennial payments of fees and taxes. As to the series LLC, you only need to submit an amendment to the Articles of Organization. You also have to fill up a form from the state, which you provide to the Secretary of State. (Of course, the rules change when the LLC and the series of LLCs are registered with different states.)
- You only pay one tax return, which, in this case, is the master LLC. However, the tax return is different from an ordinary LLC. Hiring the services of a tax preparer specializing in series LLCs will make your job easier.
- Some states do not collect sales tax if one leases out a property to another cell.
Only one tax return.
With that said, a series LLC also has its disadvantages. For instance, each of the series LLCs must have its own accounting and financial statements. If you have several cells in a series, it can be an administrative burden when the time to prepare your report comes.
Also, in some states, they charge higher fees for a series LLC compared to the ordinary LLC. However, you won’t incur additional costs when you form another LLC in the series. Paying federal taxes can also be an issue. It’s a complicated matter and best resolved by a tax attorney or an accountant specializing in series LLC.
A series LLC is a good option if you are a real estate company managing several properties. Another industry that will benefit from a series LLC is retail. If you sell several product lines that are distinct from each other, you can protect the assets of the other LLCs.