Series LLCs And Where They Are Recognized

A series LLC is a single limited liability company that can establish separate series within itself, each holding its own assets. The intended effect is separation of liability without forming multiple companies.

How the structure is meant to work

The company files once with the state, then creates series internally under its operating agreement. Each series holds specified assets and is associated with specified members.

Statutes that authorize the form generally provide that the debts of one series are enforceable only against that series' assets, if statutory conditions are satisfied.

The appeal is administrative. One filing, one registered agent and one annual report may cover what would otherwise require a separate company for each property.

The conditions are strict

The separation typically depends on maintaining separate records for each series and holding assets in a way that identifies which series owns them.

Commingling funds, or documenting ownership loosely, undermines the very separation the structure exists to create, and the burden of showing compliance falls on the owner.

Naming conventions, bank accounts, contracts and deeds all have to identify the specific series rather than the company generally.

Recognition varies by state

Only some states have series legislation. A series LLC formed in one state and operating in another raises the question of how the second state treats the separation.

A state without its own series statute is not obliged to apply another state's rules in the way the owner expects, and the answer may depend on the circumstances of the dispute.

Because the form is relatively recent, there is limited case law in many jurisdictions, which means the outcome in a contested matter is less predictable than for traditional entities.

Practical friction with third parties

Lenders, title companies and insurers may be unfamiliar with the structure, and some decline to work with it or require additional documentation.

Recording deeds in the name of a series, obtaining title insurance and satisfying a lender's entity requirements can all take longer than with a conventional company.

Tax treatment and filing obligations are a separate question again, with federal and state treatment not necessarily aligned.

Where the decision belongs

Choosing between a series structure and separate companies is a legal and tax question that depends on where the properties are, where the owner is, and who the counterparties will be.

An attorney and a CPA licensed in the relevant states should make that determination together. Statutes in this area differ substantially and continue to develop.