I've recently been reading about the development of the "Series LLC" and legalization in certain states, including popular company formation states Delaware and Nevada... but I'm still a bit fuzzy as to what they are precisely.I understand that it's almost like an LLC within an LLC / company within a company. They can operate with their own name, bank account, managers, etc, to isolate specific businesses ... which seems like it defeats the purpose of traditional holding companies in a way, but I suppose that's a different point. My questions are basically as follows:1. Each series operates relatively independently, like skunk works, apparently, with their own managers. Do they still have to report to the overall LLC owners, as with holding companies that own multiple smaller LLCs?2. If I were to try this method, even as a 'test', is it a requirement that each series get its own bank account instead of a central LLC one? Do they need their own EIN too? 3. Names? How does that work - do they have to each have their own company name? How does that work? "Company X, a Series Division of Blah LLC"? Does it have to be registered as a d/b/a?4. How are series formed? How do they relate to the LLC Operating Agreement?This sounds more and more to me as though it's simply multiple LLCs molded into one, but the paperwork reduction potential is seriously attractive, assuming it works anything like I think it does, not to mention the dramatic reduction in fees to start a small, risky venture.I realize this is a long and somewhat complex question! I apologize in advance for being vague, if I was - I'm lost to the point that I don't know how lost I am.Thank you so much for your help!!
State/Country relating to question: Nevada
Reading web pages.
A series LLC is basically a master LLC that has separate divisions, which is similar to an S corporation with Q-subs. I will address your questions one by one.
Generally, an LLC is formed in order to protect personal assets from a legal claim relating to real estate investments or business liabilities. Some of my clients prefer to only hold one property, or one separate venture, per LLC. Therefore, they get additional liability protection by forming and maintaining a separate LLC to hold each property or business entity. By forming a separate LLC to own and hold each legally titled separate property or business entity, theoretically only the assets owned by a specific LLC would be subject to claims or lawsuits arising against that LLC only, hence, liability would be limited to that particular property or business. However there are costs and administrative burdens associated with properly forming, qualifying and maintaining each separate LLC.
The series LLC gives another option, which is to form multiple series or "cells" within a Series LLC . Although each cell of a Series LLC can own distinct assets, incur separate liabilities, and have different managers and members, a Series LLC may be able to pay a single set of annual state fees and may be able to file one income tax return each year. In addition to the administrative streamlining, the key value is that liability incurred by one unit does not cross over and jeopardize assets titled in or allocated to other subsidiary units of the same Series LLC
As to your questions: 1 - They do not have to report to the LLC managers or they may, dependent upon the operating agreements. It can be set up either way. 2 - Yes, a separate bank account must be maintained for each series. Each series should also have it's own EIN although this is yet unclarified in the law. The proposed Treasury Regulations § XXX.XXXX-X(a)(5) published in September 2010 should become effective in 2012. The regulations are expected to provide that each series will be treated, for tax purposes, as a separate entity regardless of whether the series is considered a legally distinct entity under local law. 3. Yes, each series has to have its own name and register a dba. (You don't have to use the language "a series division of..." but I suppose you could if you prefer). 4. They are basically formed by filing the dba and setting up the company.
Here is some additional suggestions for you:
16 years experience with a concentration in business, corporate and contracts law
A couple followup questions here:
Finally, based on:
Could a series be signed / named in such a way that it doesn't actually include the word series, or is that a legal requirement? (ex, could that be "Blackacre Division only";)
Sorry if I'm going overboard here - I rather crave knowledge and would like to fully understand this "world"
No problem. I'm not sure I understand your first question. If you want the managers of the series to report to the primary, simply state in the respective operating agreements or other governing documents that they must do so, and upon what terms. It is somewhat, although not exactly, akin to a holding corporation, but the managers themselves would not be a new series. Just each series would report to the mangers of the primary. I stated in my reply that they should each get their own EIN. The caveat of the unsettled law does not prevent them from getting EINs, just information that the law was unsettled as to if they were required. It seems from the information provided that they will be required. Sorry if that confused you. It is of primary importance that each entity have its own bank account and financial records. If not, you risk losing the liability protection that the LLC was established to prevent. That is, if the financials are mixed in any way, liability against any one of the entities would be enforceable against the assets of ALL of the entities. That would negate the very reason for the existence of the separate entities to begin with. It would be ok to have the series for loans to each entity, however, remember they all have to be properly documented.The first example about the dba means that when you file your fictitious name certificate, you will list the name of the entity, and the owner will be the name of the primary, followed by the name of the series and the word only. What that means is that the series is owned by the primary, and that name filing is to that primary only. Again, this prevents liability bleeding over to other entities of the primary and clarifies service of process. You would not have to use the word series in the dba or contracts, deeds, etc. and if you wanted to substitute division I think that would be ok.
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