What is a Series LLC?

Now, if you are a loyal reader of my blog, and I’m sure you are (wink, wink)…you read my article on the benefits of incorporating.  And if you’ve done some homework, you’ve discovered that Nevada is a pretty friendly place to incorporate your business. In addition to having no state income tax, and relatively low business licensing fees, along with a Secretary of State who’s not only a total badass but also highly motivated to make Nevada the next Delaware, Nevada continues to improve the business climate with developments such as the Series LLC.

With our tragically depressed housing market, investors are swooping in and buying multiple properties at once.  Traditionally, in order for a landlord to protect those investments, each parcel would have to be placed in a separate LLC. With paperwork and filing fees involved for each, this process can get cumbersome and expensive. Wouldn’t it be nice if a real estate investor could insulate each parcel from the others without having to deal with all that paperwork and all those filing fees? Enter the Series LLC.

A Series LLC creates a series of LLCs, like links in a chain, that are insulated from one another in the event of a lawsuit. Each link is surrounded by a corporate veil.  Put another way, a Series LLC can be visualized as a mama duck leading her ducklings across a busy road. The mama duck represents the parent LLC, which is formed at the state level and registered much like a standard LLC would be, with the exception that it’s designated as a Series LLC in the Articles of Organization. The ducklings represent the subsequent series, or links in the chain that are each insulated from one another’s liability. So if someone sues based on something that happened to Series (duckling) 3, Series (ducklings) 1, 2, and 4 are protected.

Sounds great, right? Well, everything worth doing comes with a price. The catches are as follows:  Any entity doing business in Nevada must name a registered agent, which is a physical address in Nevada at which a human being can accept service of a lawsuit during reasonable business hours. For foreign investors especially, this often adds an extra cost.  In order to manage the Series LLC properly, each series/link/duckling requires its own bank account. A few bankers I’ve spoken to claim to have ways of making this less of an administrative nightmare but check with your banker to make sure.

Each series also requires its own set of books and its own contracts.  This can also lead to an administrative headache, but dealing with additional paperwork is certainly worth the peace of mind that comes from knowing your investment is protected.

The major benefits of a Series LLC are:

With a Series LLC, only the parent LLC needs to be registered with the Secretary of State, meaning the few hundred dollars per year only has to be paid for the parent and not for each series or link or duckling.  Because only one LLC is registered, only one corporate tax return needs to be filed, for the parent LLC.  The Series LLC provides an efficient vehicle for liability protection, particularly for those who are investing in multiple parcels of real property. The paperwork can be cumbersome but the peace of mind is worth it.