A Series LLC consists of a “Master” LLC and allows a business owner to segregate assets, interests, liabilities and members within separate “Series” under the Master. Owners of businesses with separate ventures and categories of business might consider the Series LLC as a tool to both organize the business structure efficiently, and minimize liability. Because of this, there are several issues business owners should keep in mind when considering a Series LLC.
Powers of a Series
Illinois statute specifically allows each series, in its own name, to contract, hold title to assets, grant security interests, sue and be sued, and generally operate as a standard limited liability company. If one series 1 of 4 in a Series LLC needs to sue a third-party, that series may do so without involving the entire Series LLC as a whole.
Separate Liability Between the Series
A primary benefit of utilizing the Series LLC structure is the ability to segregate each individual Series’ risk of liability. For example, in a Series LLC with 4 series, each of the 4 Series would be shielded from the others’ risk of liability. This is useful for business owners with multiple business ventures or real estate holdings. The Series LLC may provide an effective liability shield for each venture or holding while maintaining a coherent company structure. Business Owners should note, however, that case law surrounding Series LLCs is still developing and courts might refuse to respect the liability shields created within the Series.
Cost to Create a Series LLC
While each state allowing formation of a Series LLC varies slightly, in Illinois, it is more expensive to form a Series LLC ($750) than a standard LLC ($500). Further, each individual Series registered under the Master incurs a one-time additional fee of $50. Interestingly, the cost to file the required annual report for a Series and a standard LLC are the same ($250). In certain situations, a Series LLC could result in significant savings on these fees to the business owner.
For example a business that wishes to create 4 distinct LLC’s for rental properties. To form a Series LLC, business owner would pay the $750 filing fee, $50 for each of the series created ($200 total),and $250 for the annual report, equaling a grand total of $1,200. On the other hand, if the same owner were to have create 4 seperate standard LLCs, the owner would have to pay $500 for each of the standard LLCs created, and $250 each for the annual report for a year-1 grand total of $3,000.
Maintain Corporate Formalities
While a Series LLC affords important liability shield and fee savings benefits to business owners, Corporate Formalities must still be maintained. Businesses, and their owners, should make sure to maintain separate records, operating agreements, contracts, and booksfor each Series created under the Master. Similarly, the Master LLC should maintain its own separate records, operating agreements, and contracts. Finally, a Series LLC’s operating documents must be carefully drafted in strict compliance with state statute, so as to ensure the Series receives all the protections and benefits available under state law. Although following cumbersome corporate formalities is often tedious and expensive, a failure to respect the necessary formalities may give rise to a court ignoring the legal separation desired.
Make an Educated Decision
As discussed, the decision to structure a business as a standard or Series LLC involves many nuances and variables. Business owners should consider all aspects of a business structure prior to selecting one.
Our office is available to discuss whether a Series LLC is an appropriate structure for your business.