The answer to the question is YES. This can be accomplished by utilizing a series LLC structure.
A series LLC is essentially a traditional LLC with the added ability to create cells or subsidiary LLCs within the framework of one LLC. This structure is often used to protect against personal liability and to insulate one business from the debts and obligations of another.
Before states began to authorize the use of series LLCs, business owners and investors needed one business entity for each company or property they owned if they wanted to insulate each from the liabilities of the others.
Now, a business owner or investor can insulate him or herself from personal liability and insulate multiple businesses or properties from each other by utilizing a single series LLC.
Here is How a Series LLC Works
Imagine owning a condo and a duplex. If you personally own these two properties, you will be personally liable for any obligations and liabilities related to these properties. And all of your non-exempt assets, including the condo, duplex, and your personal assets will be at risk.
If a traditional LLC is used to buy the condo and the duplex, you will be insulated from personal liability. But, both the condo and the duplex will still be exposed to the liabilities of the other.
In this case, you can create a parent LLC by filing a certificate of formation with special language authorizing the creation of one or more subsidiary LLCs. Then, you can go on to create two subsidiary LLCs that are owned by the parent LLC––one to purchase the condo and one to purchase the duplex.
Afterward, if someone sues you as a result of being injured in the duplex, only the LLC that owns the duplex will be liable and at risk. The parent LLC and the LLC that owns the condo, as well as, your personal assets will be insulated from the liabilities associated with the duplex.
This level of protection can only be achieved by utilizing a series LLC or by forming multiple LLCs. But, due to the cost and inefficiencies involved in setting up a separate LLC for each property you own, a series LLC would be a better solution.
The Advantages of a Series LLC Structure
There are two primary advantages to using a series LLC - limited liability and tax simplicity:
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Limited Liability
If you are operating multiple businesses or if you own one business with a number of different business operations, you might consider separating each business or business operation into its own LLC.
The reason why you would want to do this is because then the liabilities of one business, or business operation, won't put the assets of the others at risk.
For instance, if you operate three different businesses under one LLC, if one of the businesses gets sued, the assets of the other businesses in the LLC will also be liable for that lawsuit, because they are all under one LLC. But, by separating each business, you are also separating their assets and liabilities, so as to insulate each business from the debts and liabilities of the others.
Then, if there is a lawsuit filed against one LLC, the assets of the other two LLCs, as well as, your personal assets will all be insulated against a judgment against the LLC that is being sued.
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Tax Simplicity
If you own multiple separate LLCs, you will need to file a tax return for each one. This can be somewhat cumbersome, especially if you own a lot of LLCs.
However, if those LLCs or held in a series LLC structure, the profits and losses of each subsidiary LLC will pass through to the parent LLC, so you would only have to file one tax return for all of your LLCs.
This is because subsidiary LLCs are typically single-member LLCs, meaning that they have only one owner - the parent LLC. Single-member LLCs are disregarded entities for tax purposes, which simply means that the income they earn is reported on the owner or parent company's income tax returns.
Thus, a series LLC structure can provide the owner of multiple LLCs with a great deal of tax simplicity by avoiding the need to file multiple tax returns.
As you can see, a series LLC is tailor-made for certain types of business owners, especially real estate investors and those who own and operate multiple properties. If you are interested in the benefits provided by a series LLC structure, feel free to contact us today to arrange a consultation with an experienced business law attorney who can provide you with more details.
Frequently Asked Questions
An LLC can own multiple LLCs, this is no problem. It is commonly referred to as a parent-child setup, or a holding company with subsidiaries. Generally a unique subsidiary is formed for each revenue stream or asset.
Yes, an LLC can own 50% of another LLC - it can also own 100% or 1%. This is referred to as a parent or holding company which is designed to invest in other companies.
One LLC can fund another LLC either via an equity investment or a loan. There are tax and asset protection considerations for each type of funding you should discuss with a business attorney.
An LLC can file a DBA to do business under a second, or third etc., name, but the DBA is still considered part of the same LLC - it is not a second LLC.
