By The Wyoming LLC Attorney Team
Aug 14, 2023Series LLCs offer a unique business structure with several benefits including asset protection and operational flexibility. Comprising a base LLC known as the "umbrella" or "parent" LLC and multiple series, each acting as its own business entity, Series LLCs provide operating agreements tailored to individual series' needs. Despite the fees and costs associated with formation and taxes, the single member LLCs within a Series LLC enjoy asset protection and simplified annual report requirements. While requirements for forming an LLC or a Series LLCs vary by state, certain jurisdictions like Delaware and Texas offer favorable conditions. However, states like Pennsylvania present limitations on Series LLC formation, making it crucial for entrepreneurs to conduct thorough search and consider legal advice before proceeding.
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.
A Series LLC, or SLLC, is a unique company structure that consists of a base LLC called the “umbrella” or “parent” LLC and one or more series under the umbrella LLC. Each Series acts as its own business. They can each have a unique set of members and managers with the rights and requirements of all of the members varying in different parts of the series. Due to the independence of each Series LLC, each is isolated from the liability of its parent and siblings. A series structure acts like a holding company, but many states have naming conventions that will communicate to outsiders that an LLC is part of a series. There is also different paperwork from a traditional holding company. Unlike the holding company structure, not all states allow the creation or operation of series LLCs.
If you’re wondering how to start a Series LLC in Pennsylvania, you might be out of luck. Pennsylvania does not allow the formation of Series LLCs in the state, however, it is in a near-unique legal situation with regard to SLLCs. Pennsylvania and California are the only two states that do not allow the formation of SLLCs in the state but still allow them to be registered in the state. There are some uncertainties around using these organizations in Pennsylvania as the law only came in through the Associations Transactions Act of 2014, so there is still a lack of clarity in some areas and no existing case law to clear up any confusion in these areas.
Several states permit companies to form Series LLCs. These include Delaware, Illinois, Iowa, Nevada, Oklahoma, Tennessee, Texas, Utah, and although it isn’t technically a state, Puerto Rico. Some of the best states to form a Series LLC in include:
Wyoming, though often overlooked, is an excellent state for domiciling a business. Though it does not have the name recognition of Delaware, it has very similar, favorable business laws. For example, Wyoming has reinforced in its statute its commitment to providing single-member LLCs with charging order protection, something that many other states have yet to do. It also opened a Chancery Court in 2021 proving the state’s commitment to improving business laws.
Wyoming has an edge over other states because there is no state income tax and it has relatively inexpensive filing fees. Wyoming’s fee for filing a series LLC is $100.00 for the umbrella plus an additional $10.00 for each series established.
Delaware is another great location for business formation for a few reasons, the first of which is the Chancery Court. This court oversees business law and has a reputation for providing fair rulings, as long as organizations have accurately maintained their records. Delaware also has name recognition as over 66% of Fortune 500 companies are formed in Delaware. If you are looking to raise capital for your business, this may be a benefit for you. However, this benefit is not without cost. Delaware’s filing for an umbrella LLC is $90.00 and the state charges an additional $90.00 for each series. Plus, Delaware charges a flat yearly business tax of $300 for the parent LLC and $75 for each series LLC.
There is one significant benefit to forming an SLLC in Texas, and that is the lack of management fees. The majority of states require LLCs to produce a vast amount of documentation, require meeting minutes, and collect other information about the day-to-day running of the company. In Texas, companies can bypass this process and reduce the amount of logistical and documentary work that is necessary for the average workday. Additionally, the Texas state website hosts all of its entity formation laws online.
Nevada offers two significant benefits for formation, primarily focused on supporting the operations of a Series LLC, rather than relying solely on the legal system. LLCs in Nevada don’t have to pay any state-level taxes, whether corporate or personal, which is ideal for making the most of your earnings. Nevada also supports the privacy of business owners, with owners that form their LLCs in Nevada not needing to disclose who the owner of the organization is.
Though you are not able to form a Series LLC in Pennsylvania, you can register a series formed in another state to do business in Pennsylvania. This requires you to fill out and file a Foreign Registration Statement and pay a $250.00 fee to the Pennsylvania Department of State Bureau of Corporations and Charitable Organizations.
There are a few different ways of forming a Series LLC, with the specific details of formation varying depending on the state you are forming the SLLC. Steps to form a Series LLC include:
The first step in the process of forming any business association or organization is determining the basic information surrounding the group. This includes the name of the SLLC, the individual people who are a part of the SLLC, and the structure of the SLLC. Some states have specific rules around LLC naming, such as containing the name of the initial LLC while being a distinct name. For example, an LLC named “The Business Company LLC” could have an SLLC by the name of “The Business Company in Harrisburg LLC”.
A registered agent is required to start an LLC. This is the individual or organization that will receive any legal service and other legal documents that the company gets. A registered agent can be a resident with a business address in the state that the SLLC is filed in or a company, like Wyoming LLC Attorney, that has the authority to work on your behalf.
As with any business or other organization formation, filing your paperwork is the final step in the process of making your SLLC official. Some companies choose to use a team of experts at this point in the process to ensure that they get every bit of documentation right. Having support from the very start of the process limits the chance of making mistakes and gets you started on the right foot when creating a Series LLC.
Using a Series LLC is a relatively simple process. Simply treat each of the individual bodies in the Series LLC as its own independent company as a means of keeping them separate. Completing tasks such as giving each section its own bank account, independent bookkeeping, and owning contracts provide distance between the individual SLLCs, keeping liability limited to just one of the subsidiaries in the event that something does go wrong.
Currently, the IRS treats a Series LLC as one large entity, with each individual series within the structure not being considered a separate company. Therefore, the organization as a whole pays taxes, rather than each individual section paying its own taxes as an individual body. Keep thorough accounts for any Series LLC the owners register, as you still need to declare any income that these bodies make.
There are a few reasons for forming a Series LLC, the first of which is financial. It can be more affordable to get regulatory approval for a fund that is already a part of a series and provides plenty of opportunities for creating holding companies to mitigate the risk of the entire organization’s assets being used to satisfy a debt.
This leads to the other benefit of operating a Series LLC, being the division of liability. If a single series has involvement in litigation, this isn’t an issue that affects the whole organization. The wider group remains safe from legal and financial danger as the issue is compartmentalized.
There are a series of risks involved in creating SLLCs. The first of these is the relative level of expertise necessary for running Series LLCs, as keeping all of the structures apart from one another in terms of funding and assets is a difficult process. In addition to the struggle of keeping everything separate, a lot of states don’t yet have a lot of case law surrounding these structures. This means that you could come up against unexpected legal difficulties later on, so working closely with an expert legal team is an ideal method of avoiding this being an issue for your organization.
This is especially the case in Philadelphia. As the state doesn’t explicitly announce the formation of SLLCs in the state, having an organization named “Philadelphia Property Ownership SLLC” could cause the courts to look poorly on you. The majority of risks come from the fact the SLLC isn’t tested in PA courts, so could be a difficult strategy.
Before proceeding, 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.