The Delaware series LLC is still generating a lot of interest from business owners who have multiple properties or run a variety of different businesses.
The series LLC allows entrepreneurs to save money by forming one LLC that is composed of any number of individual series of membership interests as opposed to several LLCs.
Here's how it works, plus how much you can expect to pay each year to maintain a Delaware series LLC.
Each series is effectively treated as a separate entity, meaning the debts, liabilities, obligations, and expenses of one series cannot be enforced against another series of the LLC or against the LLC as a whole. Each series can hold its own assets, have its own members, conduct its own operations and pursue different business objectives, but remain insulated from claims of members, creditors or litigants pursuing the assets of or asserting claims against another series.
The key factor in a series LLC is that it is treated as one entity for Franchise Tax and Registered Agent Fee purposes, meaning that it is assessed a single Registered Agent fee and one $300 annual Franchise Tax, rather than the separate tax and fee that would otherwise be applied individually to separate LLCs.
At first glance, the potential to save so much money on an annual basis would make the Delaware series LLC a no brainer to use for every business need. However, you should consider some disadvantages or challenges some of our clients have come across using a Delaware series LLC instead of using separate individual Delaware LLCs.
The biggest issue is the business bank account. Unfortunately, most banks are not able to accommodate the structure and allow a separate bank account for each and every series of the LLC.
The series LLC (as a legal entity) has also not been tested in the courts and many attorneys do not want to test the waters in the courts on an unproven structure. Even if a Delaware series LLC were properly operated with distinct records relating to the assets and liabilities of each series, a court in another jurisdiction could determine not to recognize the legal separation afforded under Delaware law.
Finally, many accountants are not familiar with the structure and are not able to provide advice on complicated tax issues.
To summarize, the Delaware series LLC structure is available, easy to form and has the potential to be one of the most popular types of entities. It also is less expensive than forming separate LLCs, since annual savings on Franchise Taxes and Registered Agent Fees can be significant.
However, due to the difficulty in obtaining necessarily separate bank accounts and the uncertainty surrounding the courts acceptance of the structure, many clients are sticking with the proven structure of separate legal entities for each venture.
Feel free to reach out to me personally with any questions at firstname.lastname@example.org, 800-345-2677, Ext. 6131, or DelawareInc via Skype.