Proposed Regulations on the Series LLC

There are many advantageous aspects to a Delaware series LLC, but there are ongoing uncertainities that make it difficult to actually utlize a series LLC. The Delaware series LLC business form reduces the fees incurred in creating and maintaining separate business entities for different ventures or investments; only one filing fee is required to form a series LLC, regardless of the number of series it may contain. In addition, a series LLC is treated as one entity in regard to Franchise Tax and Registered Agent Fee purposes, meaning it is assessed one $300 annual Franchise Tax and one Registered Agent Fee, rather than separate Franchise Taxes and Registered Agent Fees that would otherwise be applied, individually, to distinct LLCs.

If this sounds too good to be true, well, many people think it is. The myriad issues concerning the series LLC, such as the legal separation of the assets and liabilities of each series held in a series LLC, have not been thoroughly tested in court. Although Delaware law clearly provides for the legal separation of series contained in a series LLC, it is unclear whether courts in other states and/or jurisdictions will recognize a legal separation of assets and liabilities within what is, essentially, a single entity. Therefore, even if a Delaware series LLC were operating properly, with distinct records relating to the assets and liabilities of each series, a court in another jurisdiction could very well decide not to recognize the legal separation afforded under Delaware law.

Another problematic issue is the mystery surrounding the taxation of the series LLC; however, the Internal Revenue Service is finally taking action by proposing new regulations governing the taxation of this unique and often misunderstood entity. Both the IRS and the Treasury Department have proposed regulations that will clarify the fact that each individual series within the series LLC could be considered a separate entity for federal taxation purposes.

What does this mean? Is the IRS implying that each individual series can elect a tax classification that best suits it? It seems like it, but keep in mind these are only proposed regulations and they have yet to be finalized. 

For more detailed information on the new proposals for the series LLC, view Series LLC Regulations regarding the tax classification of so-called series or cells.

If you'd like to read additonal articles about the series LLC, Harvard Business Services, Inc. has several for you to choose from:  

The Delaware Series LLC: Advantages and Disadvantages

What is a series LLC?

The Delaware Series LLC Operating Agreement and Structure

Free series LLC Operating Agreement template


[Please note: As of August 2019, Delaware has amended its Series LLC law. All information in this article pertains to what is now known as a Protected Series LLC, as opposed to the newly introduced Registered Series LLC.]

*Disclaimer*: Harvard Business Services, Inc. is neither a law firm nor an accounting firm and, even in cases where the author is an attorney, or a tax professional, nothing in this article constitutes legal or tax advice. This article provides general commentary on, and analysis of, the subject addressed. We strongly advise that you consult an attorney or tax professional to receive legal or tax guidance tailored to your specific circumstances. Any action taken or not taken based on this article is at your own risk. If an article cites or provides a link to third-party sources or websites, Harvard Business Services, Inc. is not responsible for and makes no representations regarding such source’s content or accuracy. Opinions expressed in this article do not necessarily reflect those of Harvard Business Services, Inc.

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