A Series Limited Liability Company is a special form of business structure that provides limited liability protection to each individual constituent of an LLC. To elaborate, in a series LLC, each of the (multiple) series of companies is protected from the liabilities of the others. It is something akin to a corporation with subsidiaries. Generally series LLCs are formed to protect real estate investments. Each separate investment is constituted as an LLC and brought under a single entity. By doing this the specific LLC in the series is liable only to claims arising out of its own business. In this manner each investment is protected from the liabilities of other LLC’s in the series, essentially liability of one LLC does not cross over to the other series. The advantage of a series LLC form is that the legal and statutory obligations and administrative procedures can be performed as a single entity. There are limitations to this single entity filing though. If any of the series constituents has a member who is not a member of the founding LLC, it has to file returns and pay fees as a separate LLC. There are some tax benefits also in forming a series LLC. One among them is that if one of the series is using property of another for business purposes and paying rent, sales tax on the rent may not be applicable.
How to form a LLC series depend on the state statute where you wish to register your series LLC. Basically the requirements are almost the same as forming a normal LLC. An Articles or Certificate of Organization has to be filed and due fees paid. Series LLC should have a Limited Liability Company Agreement like that of the Operating Agreement in a normal LLC. Addition of new series or deletion of an existing series is uncomplicated. An amendment to the agreement would suffice. Each constituent of the series LLC should have a distinguishing mark that separates it from others. For example, XYZ LLC Series A or XYZ LLC Series B. Keeping the business of each LLC seperate in the series is imperative. You must maintain separate books of accounts, bank accounts and other legal documents and transactions to get the limited liability protection for each LLC. Ensure that all assets and contracts distinctively state the name of the series it belongs to. The transactions between the series must be in a comparable uncontrolled price method or a fair market price method and should be properly recorded.
While operating a business it is advisable to have a legal form for many reasons. Essentially your business should have a separate identity from that of your person to keep things in perspective. The business operations, its success or failure can be effectively monitored. Moreover, keeping a separate book of accounts will help in filing yearly tax returns. Formation and operation of legal business forms are governed by state statutes.
The legal forms for operating a for-profit business are Sole Proprietorship, Partnership, Corporations and Limited Liability Company. Each legal form has its risks and benefits. Sole Proprietorship is suitable for an individual operating a business without a great deal of risks or potential liabilities. If you are jointly operating a business with two or more persons, partnership is suitable. Both these forms of business are simple to form and easy to operate. The inherent risk in proprietorship or partnership is that the business owners are personally liable for all business debts.
Limited Liability Company or LLC and Corporation offer limited liability protection to business owners. They are not personally liable for the business’s debts or obligations. Forming a LLC or a Corporation requires compliance with state laws. To set up an LLC or a Corporation you have to file certain documents with the state as required by the state statute and pay a filing fee. You may have to pay a regular yearly fee to the state for the maintenance of these business entities.
Corporation has a separate legal existence from that of its share holders. In the eye of law, corporations are ‘persons’ and are treated as such. Due to the separate legal entity status, the office bearers of the corporation are obliged to conduct the business operations strictly in accordance with the regulations governing corporations. LLC has comparatively more flexibility in business operations. While it has the personal liability protection as in a corporation, it offers the flexibility and taxation benefits of a partnership or sole proprietorship.
How to form an LLC depends on the state in which it is registered. Rules and regulations on how to LLC vary in each state. The basic requirement in all states is to file articles or a certificate of organization and pay a filing fee. Some states require an operating agreement and publication of the intent to form a LLC additionally to that of the articles. LLC is not a tax classification in the Revenue Code. LLC’s can elect to be taxed as any of the other tax classifications which is convenient and beneficial to its business owners.
Limited Liability Companies or LLCs are suitable for small businesses with considerable business volumes. The limited liability of the business owner in an LLC protects personal assets from business obligations. Unless your business involves cross border transactions or you are planning to go public, there are few advantages in forming and operating your business as a corporation. LLC’s can operate like a corporation with the flexibility of a partnership. Business continuity can also be ensured if the members of the LLC choose to do so. The Operating agreement can structure the memberships in such manner as to be easily transferable.
Don’t get excited by the advertisements about the Delaware or Nevada corporations. Those are for the big corporations with muscle and money. Even if you set up an out of State Corporation, you will have to qualify to do business in your state. This entails additional expenses and you do not get the tax benefits you angled for with an out of state Corporation. Register LLC in your hometown and avoid a lot of hassles involved in out of state Corporations. Forming LLC in most states is quite simple. States encourage small business registrations and have simplified procedures for LLC formation. Check with the state department that deals with business registrations in your state on how to form an LLC. Generally business registrations are handled by the Secretary of State’s or Corporations Commissioner’s offices. Detailed instructions are available on all State websites.
State statutes govern the LLC formation. Rules and regulations and formalities may differ in each state. In all states the LLC needs a name to operate under.
Care should be exercised while choosing a name. The LLC name cannot be identical or deceptively resemble the name of an existing business. Databases and registries are available with states or on the internet and can be freely accessed to check the name availability.
The basic requirement in all states to register LLC is to file an Articles of Organization. Some states have additional requirements such as filing the LLC Operating Agreement and issuing a public notice about the intent to form LLC. A fee has to be paid in all states to register LLC, which vary in each state. The Articles or Organization should contain all essential information regarding the purpose and organization of the LLC. The Operating Agreement is imperative to the proper functioning of the LLC and to provide it with individuality from that of its members.
