What is a Series LLC?
A Series LLC is a special type of limited liability company that allows you to create multiple internal "series" or "cells," each with its own assets, liabilities, and members. The key feature: liabilities of one series are generally shielded from the assets of other series and the parent LLC.
Think of it like an apartment building: each apartment (series) is separate, but they all share the same structure (parent LLC). A fire in one apartment does not spread to others.
Why Foreign Investors Use Series LLCs
Cost Savings
One parent LLC with multiple series costs less than forming separate LLCs for each property.
Administrative Simplicity
Maintain one registered agent, one annual report, and one set of records.
Liability Compartmentalization
Each series has its own liability shield. A lawsuit from Property A cannot reach Property B.
Scalable Structure
Start with 2-3 properties and easily add more. Perfect for growing portfolios.
States That Allow Series LLCs
Not all states recognize Series LLCs. Here are the states with Series LLC legislation:
Series LLC vs. Multiple Separate LLCs
| Factor | Series LLC | Separate LLCs |
|---|---|---|
| Filing Fees | One fee ($100-300) | Multiple fees each |
| Annual Reports | One report/year | Separate per LLC |
| Registered Agent | One agent | One per LLC |
| Adding Assets | Internal series | Form new LLC |
| Liability Protection | If state recognizes | Well-established |
| Cross-State | Uncertain | Universally recognized |
| Tax Filing | IRS uncertain* | Clear rules |
*IRS proposed regulations suggest each series may need its own EIN and file its own return.
Critical Requirements for Liability Protection
Series LLC liability protection only works if you follow strict formalities:
What You Must Do
- Separate books for each series
- Separate bank accounts
- Proper asset titling
- Adequate capitalization
- Operating agreement provisions
What to Avoid
- Commingling funds
- Shared accounting
- Wrong series on contracts
- Underfunded series
- Missing documentation
Forming a Series LLC: Step by Step
Choose Your State
Select a state that recognizes Series LLCs. Consider where your assets are located.
File Articles of Organization
Form the parent LLC with language establishing it as a Series LLC.
Draft Operating Agreement
Address series creation, capital, profit/loss allocation, management for each series.
Create Individual Series
Execute series designation document for each asset or business line.
Obtain EINs
Best practice: separate EINs for the parent and each active series.
Open Bank Accounts
Separate accounts for parent LLC and each series to avoid commingling.
Transfer Assets
Title each asset in correct series name: "Parent LLC, Series A" on deeds.
Tax Treatment of Series LLCs
IRS Position (Proposed)
- Each series = separate entity
- Each series needs own EIN
- Each series files own return
- Parent may be separate entity
Practical Approach
- Obtain EIN per series
- Maintain separate books
- Consult tax professional
- Prepare for separate returns
When NOT to Use a Series LLC
Despite their benefits, Series LLCs are not always the right choice:
- Properties in Non-Recognition States: If properties are in California, New York, etc., liability protection may not be respected
- Only 1-2 Properties: Complexity may not be worth it; consider separate LLCs
- Seeking Financing: Many lenders unfamiliar with Series LLCs, may require traditional structure
- High-Risk Activities: Separate LLCs provide clearer protection for significant liability exposure
- Different Ownership: If each property has different owners, separate LLCs are simpler