What is a Series LLC? Should I Form One?

By Brett Melson Tuesday, May 8, 2018

what is a series llc?The Delaware LLC laws allow for the creation of a very interesting and unique entity, the series LLC.

In a Delaware series LLC, each series is 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 business and pursue different business objectives, yet they remain shielded from claims of members, creditors or litigants pursuing the assets of or asserting claims against another series.

In addition, a series LLC is treated as only one entity for Franchise Tax and Registered Agent Fee purposes, meaning the LLC is assessed one $300 annual Franchise Tax Fee and one Registered Agent Fee, rather than the separate taxes and fees that would otherwise be applied, individually, to separate LLCs.

While in theory the structure of a series LLC sounds perfect, in reality it is too good to be true. Due to all the uncertainty amongs series LLCs, many business owners have encountered frustrating complications and challenges when trying to utilize a series LLC.

Problems with a series LLC: 

  • The legal separation of the assets and liabilities of each series in a Delaware series LLC has not been tested in court.  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 decide not to recognize the legal separation afforded under Delaware law.
  • The United States federal tax treatment afforded to individual series is uncertain. The Internal Revenue Service and the Treasury Department have proposed regulations that would, indeed, clarify that each individual series within the series LLC could be considered a separate entity for federal taxation purposes. According to the proposal, each individual series can elect the tax classification that best suits that individual series needs; for example, one series—with two or more members—could be taxed like a partnership while another series can be taxed like a disregarded entity. However, none of these proposed regulations have yet been finalized.
  • Other states have yet to provide concrete guidance on the effect of the series LLC distinction for state tax purposes if a Delaware series LLC operates in another state.
  • Banks are totally unfamiliar with the structure of a series LLC and have a very difficult time comprehending that each series can open its own separate bank account.
  • Many attorneys and tax professionals are also unfamiliar with the series LLC structure and cannot offer adequate counsel about them.

advantages of a series llc

As the series LLC structure gains traction and becomes more popular, more and more buisness owners with traditional LLCs have been inquiring about transforming their existing LLC into a series LLC.

This can be achieved by amending the original Certification of Formation filed with the Delaware Division of Corporations to include an additional article; this article will allow the LLC to establish multiple, designated series of members, managers or membership interests.

The best solution, at the moment, may be what some of our clients have been doing in order to avoid the current uncertainity of the series LLC; they are opting to form their new LLC as a series LLC and simply not utilize the individual series until the above issues are clarified.

This way, the series LLC structure is established and ready to be used in the future, and it will not be necessary for them to amend their Certificate of Formations in order to allow for the series LLC structure.

Since the fees to file a Delaware series LLC are the same as a traditional LLC, we would be happy to help you create a series LLC—which can function as a traditional LLC for the time being—for you.

You can do so online www.delawareinc.com/order/ or, if you have any questions regarding the Delaware series LLC, please feel free to call me at 800-345-2677, Ext 6131 or email me at brett@delawareinc.com.

[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.]


Photo credit: Horla Varlan

*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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There are 2 comments left for What is a Series LLC? Should I Form One?

elena said: Friday, July 20, 2018

Hello, If a series LLC is created to invest by an investment manager in the US and the investors in each llc are non US, what filings does the series llc have to do for the time being? I would say each llc would be classified as a passthrough entity. Thank you

HBS Staff replied: Tuesday, July 24, 2018

We recommend that you consult with a tax professional for something this specific, just to be on the safe side, as there are many variables involved.

Alan Haberman said: Tuesday, December 19, 2017

Can a loan be created in the name of the LLC rather than in the name of a series

HBS Staff replied: Tuesday, December 19, 2017

We are sorry but we can't answer this question for you. It would be best if you consult an attorney or your bank to get the correct answer. Thanks for reading our blog.

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