By The Wyoming LLC Attorney Team
May 04, 2023If you’re establishing a company in Illinois or wishing to restructure it in any way, it can be worth investigating the option of transforming it into a Series LLC. This unique structure has much to offer you and your firm – affording you greater administrative freedom while protecting your assets. Forming an LLC entails various steps and considerations, from fees to the benefits and legal requirements involved. Understanding the taxes, annual report obligations, operating agreement, and the different LLC structure options like a single member LLC is essential for compliance and asset protection. Before initiating the process, a thorough search and comprehension of state-specific regulations on how Series LLCs in Illinois operate is paramount to a successful establishment.
In this article, we look at Illinois Series LLCs, including how to create one and other considerations you should account for before restructuring your company.
A Limited Liability Company (LLC) is a corporate structure that protects its individual members and owners from liability in the event of bankruptcy or other significant business hardships. All US states recognize this as a legitimate way of managing a firm; this is different from a corporation, where shareholders collectively own the organization. An LLC is also much simpler to form than a corporation. A Series LLC is where an umbrella LLC has ownership of multiple LLCs which are legally entirely separate from each other. These cells also have individual members (or owners) alongside the umbrella LLC owner.
The master LLC has a significant amount of control over their own LLCs – which are comparable to a company’s subsidiaries. Delaware was the first state to introduce the concept of segregated liability in 1996, which led to the development of modern Series LLCs as we know them today. This format is especially prominent across the rental market, allowing property owners to cleanly separate their investments. Businesses may also decide this structure offers the most financial incentives while fitting their current revenue stream. Construction firms and investment organizations may also offer separate LLCs for each of their various projects and services.
The state laws surrounding Series Limited Liability Companies can often be very complicated – Illinois currently allows for the establishment of Series LLCs, but not every state is able to reap these benefits. Only certain parts of the United States allow this formation, with Virginia being the most recent state (2020) in this regard. The 20 states, territories, and areas in the United States which currently permit you to establish a Series LLC include:
Illinois first allowed for the creation of Series LLCs in 2005 – only nine years after Delaware formally introduced the idea of this structure. As these companies are mainly a state matter, there are some unique details present in how Illinois formally implemented the Series LLC, which can impact your requirements for starting one. As just one example, the master owner must file an LLC-37.40 document when establishing the individual cells, known as a certificate of designation. The unique business climate of Illinois can also determine the success of such an approach; this is often as critical as each cell’s creation.
If you plan to operate your Series LLC outside of Illinois, you should be aware of other state laws concerning these entities. While you cannot establish a Series LLC in California, the state does recognize the legitimacy of such a business if it was created in a different state, meaning an Illinois SLLC can conduct business with California clients. Some states (such as Wisconsin) also have ‘false series’ laws, with the ‘series’ this legislation refers to instead meaning corporate-owned stock series. This distinction is important if you aim to do business across state lines and may affect the legality of these transactions. Over time, it’s likely that these laws will change further as the concept of a Series LLC is still relatively new.
Knowing how to start a Series LLC in Illinois is essential for navigating the state-by-state nature of this structure and its practical implementation. The usual steps for creating an Illinois Series LLC are:
Illinois Series LLCs follow particular naming laws; each cell must include the full name of the umbrella company alongside ‘Limited Liability Company’ or ‘LLC’. Some words such as ‘Bank’ or ‘Attorney’ could require additional paperwork to authenticate and for at least one member to be licensed in this field. Pick a name that lets it stand apart from the parent company – though it must still include the umbrella LLC’s name.
The next step is to find an Illinois registered agent. Your registered agent will be responsible for certain legal documents delivered to your LLC by mail including service of process and documents sent by the state. This might include any relevant state filings or potentially even a service process of legal action if somebody, or another business, sues your company. The agent could be anyone with a physical address in Illinois including yourself, another member of the LLC, or a third party like Wyoming LLC Attorney.
There are various documents you need to file and sign when establishing a Series LLC; two significant examples are the Articles of Organization and the Certificate of Designation. The former outlines the basic information of your LLC, including its overall company aims and name; this makes your LLC an official entity. Your Certificate of Designation is what establishes each individual child company as a part of your umbrella LLC.
A Series LLC operating agreement does not require filing with the state but is still vital for outlining the LLC and its ownership status, including the general company structure and procedure. Depending on how many members the LLC has and how complex the needs of your organization are, an attorney presence to help navigate and divide the organization’s control may be helpful. Take your time with this step as these decisions could be difficult to reverse.
An Employer Identification Number (or EIN) is how other organizations, especially state and federal groups, are able to identify the company. Each cell within your Series LLC will require a different number specifically due to their segregated structure – the numbers are vital for opening business bank accounts and hiring staff. You can easily get EINs online for free directly from the Internal Revenue Service. EINs are required to open a business bank account.
Forming your Series LLC is only the first step toward potential success. Your first priority should be sorting out the organization’s finances by opening a business banking account; only possible with your EIN. This is the only way to protect your child companies from liability. Strong accounting is important for any business but a Series LLC can only keep its assets safe with thorough bookkeeping and separate records for every cell – possibly with multiple accountants. You may be able to save on costs by sharing some expenses across your businesses, such as rent for shared office spaces.
An annual report is a key part of doing business in any state; Illinois is no exception. You’ll need to file this with the Secretary of State; the easiest way to do this is typically online, though you might decide to file your annual report in person or via the mail. Every option involves a payment – with online filing costing $150 compared to only $75 for mail. You must submit this each year within 60 days prior to the anniversary of your organization’s foundation; you risk serious fines and even the firm’s dissolution if you don’t submit this document on time.
Diligence is vital throughout the operation of a Series LLC. Just one mistake could easily lead to a loss of limited liability protection – such as if you miss the deadline for filing an important document. A registered attorney or external agent could help you throughout these issues, reminding you of any tasks you need to complete while taking care of various administrative matters themselves. These professionals know exactly how to keep Series LLCs together without any legal loopholes that put them at risk; they could be an essential investment to make sure your Series LLC is entirely above board.
There are many reasons that people might choose to form a Series LLC. This structure offers plenty of benefits for its owners, including:
Protection from liability is perhaps the most significant benefit for any Limited Liability Company, allowing you and other owners to protect any personal assets if the organization faces any difficulties. When working with a series structure, this becomes even more helpful. For example, if one of your cells goes bankrupt and needs to give away its assets, the other cells are not obligated to do so. This doesn’t mean there would be no significant consequences for your other companies – but it maintains the strong liability protection that any LLC offers.
Protection from liability is perhaps the most significant benefit for any Limited Liability Company, allowing you and other owners to protect any personal assets if the organization faces any difficulties. When working with a series structure, this becomes even more helpful. For example, if one of your cells goes bankrupt and needs to give away its assets, the other cells are not obligated to do so. This doesn’t mean there would be no significant consequences for your other companies – but it maintains the strong liability protection that any LLC offers.
Setting up additional series members is much more simple than creating new companies entirely from scratch, helping you streamline the entire administrative process. As each company has its own independence, you can establish new cells without needing to micromanage them too much long-term. The optimized document filing process similarly makes everything easier for you and other members of staff, especially for annual reports and tax returns. Creating a new cell whenever necessary also gives them liability protection without you needing to set this up with the Secretary of State.
The costs you save can be very useful for long-term growth, affording you more start-up capital and letting you invest more in each cell. This also enables you to develop every facet of your overarching organization – diversifying it in a number of ways and making sure each cell fills a notable niche. The more unique you’re able to make each individual member of your series instead of keeping it as a single LLC, the stronger your returns could be across the board.
While Series LLCs offer many benefits, they also have various risks that you should be aware of before forming one. An attorney can help manage these issues and maximize your chances of success. The risks include:
Not every state recognizes Series LLCs which could affect and even massively limit your ability to do business in other territories – you could create a Foreign Series LLC to get around this. Many places across or outside the US may still treat you as a traditional LLC. There have been few legal precedents or cases which set out the details of this matter.
A successful Series LLC requires comprehensive and thorough bookkeeping, with clear divisions between every cell to avoid any asset mix-ups. This is an especially sensitive process that spreads across the Series LLC – hiring an experienced accountant is the only reliable way to avoid these concerns. You need to make sure everything follows the correct standards – your accountant and agent can guarantee this.
Series LLCs are a relatively recent innovation that the legal profession has yet to fully unpack – this means they could be subject to changes in the near future, especially if more states begin to accommodate them. With the IRS wanting to change how these organizations file their taxes, it’s unclear how SLLCs will operate in the future and if they will still carry these benefits.
There are a number of issues that could result in your Series LLC losing liability protection, such as failing to file a document before the relevant deadline. Commingling assets and funds between cells are also allowed to a point (such as sharing office spaces), though failing to keep these assets separate could affect both cells’ protection, so seek an expert’s guidance.
If you’re wanting to set up a Series Limited Liability Company to benefit from a lower start-up cost and a higher level of overall flexibility, it’s paramount that you have the guidance of an attorney and agent at your side. This is the best way to mitigate the risks that come with a Series LLC, such as by accounting for documents and new legislation.