This article discusses the concept of a series limited liability company and its operation, specifically focusing on Georgia. It explains that while Georgia does not allow the formation of Series LLCs, it is possible to operate them by registering them as foreign entities.
In the United States of America, entrepreneurs have different business structures to choose from. Each structure offers different styles of operation and benefits which is why it is beneficial to research different structures so you may decide which will be most suitable for your company.
A very common business structure in the states is an LLC, which stands for limited liability company. A limited liability company is a favored style of business and is particularly popular for small businesses, new entrepreneurs, and first-time business owners. Throughout this article, we will take an extensive look into what a Series LLC is, how it operates, and more specifically, a Series LLC in Georgia.
What Is an LLC?
Limited liability companies are a business structure in the United States that completely protects its owners from facing any form of personal responsibility for the company's debts or liabilities. This means that should the business find itself in any financial or legal issue, the responsibility will not lay with the owner and it will not affect their personal assets or finances. This is why LLCs are particularly popular with small businesses and first-time business owners as its legal protection acts as almost a safety blanket for owners who may be concerned with the risks of starting a business without prior experience and excessive amounts of funds.
What Is a Series LLC?
A Series LLC is a type of limited liability structure that operates similarly but with the company split into sections. This means that the company is split into aspects called ‘series’ which are all part of the same LLC but are treated as separate LLCs. Each series is its entity and operates as its own business that exists under the wider umbrella of the main LLC. This is done with the overarching goal of providing legal protection for legal liability to each series. This means should one series face a lawsuit, the other series will go unaffected.
Series LLCs were first invented in Delaware to help the mutual fund industry avoid filing multiple SEC filings for different classes of funds by keeping these filings all under one umbrella while allowing the individual funds’ activities to be conducted separately. This concept is similar to that of the segregated portfolio company or protected cell company which exists in offshore countries such as Guernsey, the British Virgin Islands, Bermuda, the Cayman Islands, Mauritius, and Belize.
Does Georgia Allow Series LLCs?
The short answer to ‘Does the state of Georgia allows Series LLCs’ is no. In the state of Georgia, you cannot legally form and register a Series LLC. However, there are ways around this. You can technically operate a Series LLC in Georgia, just not form it there. To learn more about how to start a Series LLC in Georgia, we have composed a guide to follow:
- Form an LLC in Georgia. This cannot be as a series but rather as a standard limited liability company that can operate and be formed under the state of Georgia’s governing requirements for an LLC.
- Domesticate this LLC into a series state. Certain states do allow for Series LLCs, so you want to domesticate your LLC to one of those states and have it registered there.
- Make it a series by altering the articles of organization to state that your LLC can make a series/multiple series.
- Register your Series LLC in the state of Georgia as a foreign entity. Georgia will accept Series LLCs from other states and allow for their operation of them due to its acknowledgment of them.
Which States Allow Series LLCs?
Series LLCs are not allowed in every state in the US. Some states do not recognize Series LLCs as legal entities at all. Others recognize them but do not allow for the formation of them, like a Series LLC in Georgia, these allow for the operation of LLCs but not for the formation of them in their state. Some do allow for the formation, registration, and operation of Series LLCs under their state regulations. These states are highlighted below:
- District of Columbia
- North Dakota
- Puerto Rico
Above is the current list of states that allow for the formation of Series LLCs under their jurisdiction however, this may change and grow over time.
The most popular place to establish a Series LLC is undoubtedly Delaware. As the first state in America to permit these special types of limited liability companies, it has the most expertise and the highest success rate: since 1996, only one Series LLC has gone bankrupt.
Although states like Georgia and California don’t allow for the formation of Series LLCs, series can still operate there as long as they have been registered as foreign entities.
How Do You Form a Series LLC?
The process of forming a Series LLC varies between states in terms of what is required and how it should be formed. However, certain general steps typically apply for all states that you can follow to easily form your Series LLC. These are as follows:
- Determine your Series LLC name – your company must have a registered name. This includes the parent LLC, the main LLC, as well as the child series, each series of the LLC. These names must be distinctive and include ‘LLC’ at the end of them. It's also recommended to refer to what each series offers in its name.
- Get a registered agent – this is the member of your LLC that handles all of your legal documentation. This includes receiving, sending, and filing any legal work.
- File your Series LLC paperwork – each state will have different requirements for what paperwork needs to be filed regarding a Series LLC, but typically all states require articles of organization to be filed. This is a legal document that will highlight all the relevant information about your LLC. If you wish to establish a series within your LLC, you will need to highlight so here and declare that the LLC is allowed to form a series.
To do this in Georgia, you want to register your LLC, establish that you can make a series on your articles of organization, and register each series in a state that allows for this, such as Delaware. You then want to register each series that you want to operate in Georgia as a foreign entity under Georgia state law. You do not have to register every series in Georgia, just the ones that will operate there.
How To Use a Series LLC
A Series LLC offers many benefits and its main advantage is that it can limit your business’ liability when it comes to any legal or financial issues. However, there are ways to utilize your Series LLC structure as much as possible. We have composed a list of helpful tips regarding how to use a Series LLC listed below:
- Establishing a series – the series can have as many members as you wish and must operate as a separate entity from the other series of the LLC. These can be registered in Georgia individually.
- File tax return on Master LLC – we recommend that when it comes to the taxation of your Series LLC, you should file your federal tax under the main/parent LLC. This will encompass all of the series under the master LLC. However, some states do not allow for this and insist on taxing each series separately so it's important to check your state guidelines first.
- Establish your LLC agreement – although this isn’t a requirement in every state, we highly recommend filing it. The operating agreement should have specific details to protect the business and its owner(s). Some of these details are ownership percentage; authorization of series; accounting method; profits and losses; managerial structure; voting process; member withdrawal.
How Does Series LLC Pay Taxes?
Taxation for Series LLCs can be complex. There isn’t necessarily one clear answer for how a Series LLC should pay its taxes which is why we recommend working closely with a qualified attorney who can help differentiate the appropriate way to file your taxes to avoid any legal and financial issues from the governing state. Typically speaking, a business owner of a Series LLC can file for a single federal tax return under their main LLC. The series of LLCs are still under operation of the master LLC and many say that this means you can file one tax return under the parent LLC.
However, the IRS has also issued guidance suggesting that each series should be treated as individual, taxable entities. If this is ever adopted, you will need to alter your taxation methods accordingly. Some states may also highlight that they wish for any operating Series LLCs registered under their state to be taxed as separate entities and to be truly treated as their own LLCs. That’s why you should always research the specific guidelines and regulations set by each state. This will help to make sure that you are not committing any sense of fraud or tax avoidance and can also impact your decision on whether you wish to form a series or what state you will register under.
In Georgia, Series LLCs do not pay separate taxes on business income but rather, each LLC owner will pay individual taxes on their share of the profits.
What Are the Main Reasons for Forming a Series LLC?
There are many reasons why you may choose to form a Series LLC and opt for this structure of a limited liability company when starting your new business. A Series LLC offers many benefits including:
- Can help protect a business's assets – an LLC in general is a great way to protect the owner's assets and a Series LLC is no exception. By limiting the owners' liability they are completely protected from any legal or financial obligations the company may face. A Series LLC also protects the remainder of the business. Should something go wrong in one series, the others will go unaffected which is a great way to establish extra protection.
- Offers more flexibility – a Series LLC is arguably the most flexible business structure. You can have as many or as few members of your Series LLC as you would like. And typically, you can be more flexible with your taxes, choosing how you wish to file them.
- Cost-effective – usually it costs a lot less money to protect your assets with a Series LLC than another kind of protection plan.
What Are the Risks of a Series LLC?
Forming a Series LLC comes with its risks and these should all be considered before you make any concrete decisions and begin putting the plans in motion. Some of these risks to keep in mind are listed below:
- Lack of guidance regarding taxes – as we stated earlier there is currently not one clear, set answer as to how a Series LLC should file their federal tax. Especially in Georgia where there is not a lot of guidance on Series LLCs in general, let alone their taxation. This can lead to unintentional financial missteps and unnecessary stress for company owners that can impede operations.
- Unclear concerning bankruptcy – federal laws also offer very little guidance concerning bankruptcy. There is not much information on what would happen should one series go bankrupt. How would this affect the others? How does this affect the overall LLC?
- May limit your investment opportunities – Series LLCs are not designed for larger companies so if you plan to take your business to a larger scale and gain external investments, an LLC does not support this. This can increase the chance of bankruptcy as it means the success of the business is based solely on the owner and its members with no additional help.
A Series LLC can provide a lot of opportunities regarding flexibility when it comes to your business. Whether that be by taxation or the structure of your company, a Series LLC can help to protect you from personal liability, however, if your main state of business plans to be in Georgia, a Series LLC may not be all that worthwhile due to the complications and uncertainty that comes from the state’s disapproval of it as a business structure.
Before proceeding with forming a Series LLC, we recommend you watch the following video Series LLCs to see if a Series LLC is right for you. If you decide that a Series LLC is right for you after watching the video, we still strongly recommend that you first speak with an attorney before ordering this product.