Business entity law is constantly evolving, with the next great innovation seemingly always on the horizon. The most recent innovation has been the “series LLC”. This new type of entity allows business owners to capture many of the benefits of traditional LLCs in a more convenient single package.
Series LLCs allow for one master LLC to maintain multiple “series” within itself. This essentially allows one company (with one yearly filing and registration fee) to operate infinitely many series, each with the ability to own distinct assets and incur distinct liabilities, have different managers and members, and be shielded from the liabilities of other series. This could be of great benefit to many types of business owners, including, inter alia, those who for liability protection purposes hold many separate pieces of property in separate LLCs under an umbrella holding company, such as real estate investors, hoteliers, and car services operators. Many businesses operating as multiple entities could potentially benefit from the simplicity and convenience of a series LLC.
The downside is that to maintain this liability protection, the various series must maintain certain formalities, including separate accounting for each series, properly documented arms-length loans between series, and adequate capitalization of each series. These measures can be costly, and a careful evaluation must be undertaken in each individual circumstance to determine if the benefits of a series LLC justify these added expenses.
Twelve states (including Kansas and Illinois), the District of Columbia, and Puerto Rico have adopted legislation on series LLCs, beginning with Delaware in 1996. Their adoption has been slow initially, with many states only passing legislation regarding their creation and operations in the last two years. Like the original LLC before them, series LLCs suffer from lingering initial questions as to their tax, bankruptcy, and liability status that are only beginning to be answered. As more states adopt similar legislation and the first cases are decided by courts in the states that have adopted this multiple business entity legislation, series LLCs are likely to grow in popularity.
If you’re wondering which business entity is best for your business, contact our office at 816-561-5000 or send us a message through the form below.
*This post was originally published on March 25, 2013
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