What’s the difference between a traditional LLC and a Series LLC? Is one business entity better than the other?
Here, we'll compare Series LLC vs. LLC and discuss where and how a Series LLC functions and which type of LLC might be beneficial for your company.
What Is a Standard LLC?
A standard LLC is a business entity that provides small business owners with protection by separating their business and personal assets. This means that a business owner can only lose the money invested in the business and will not personally be required to pay back debts or cover damages when facing a lawsuit.
Other key factors contributing to LLCs' popularity include their flexibility, low cost, and less complicated tax preparation, especially when it comes to single-business tax reporting.
What Is a Series LLC?
A Series LLC gives you all the same benefits as a regular LLC, but it serves as a sort of "umbrella company" with additional flexibility and protections for multiple companies or lines of business within your overall operation.
But who uses a Series LLC? One example is rental property owners. A Series LLC can give rental property owners a way to separate their real estate investments from one another. Businesses that operate multiple channels of revenue (or have separate teams or divisions in different states) may determine that a Series LLC is the best fit for their company as well.
Even though Series LLCs (sometimes called an LLC with the ability to establish a series) were created to simplify investment portfolio management, this type of business structure is still a relatively new approach to LLCs. And Series LLCs are currently available in 22 states, including Delaware, Nevada, Texas, Virginia, and Wyoming.
So, depending on the state in which you reside, the Series LLC option may not be available. If it is available, each "Series" of the LLC should be added and listed in the operating agreement.
It's also important to understand the distinction between a Series LLC vs. a holding company. If you start a holding company, you will not be actively operating any of the businesses underneath you. With a holding company, you will strictly own stock in another company, enough stock to have sway over its management but not direct operations.
Standard LLC vs. Series LLC
One key feature of an LLC common in both types of LLCsis asset protection. Do you plan to form your business as a standard Limited Liability Company, which is what millions of business owners do every year in an effort to protect — and separate — their personal assets from their business assets, or are you planning on forming multiple LLCs under a parent company — also called a Series LLC?
Two examples where the latter would work include multiple real estate properties or separate investments. If you fall under these two examples, you would want protection from liability and risk between the individual companies.
To help you determine what type of LLC is right for your business, here are the pros and cons of each option.
StandardLLC: Pros and Cons
Many business owners form one LLC or create a DBA (Doing Business As) in lieu of forming multiple LLCs. Learn the pros and cons of standardLLCs below.
Pros:
You can have one LLC with multiple DBAs that fall under the same company.
A DBA can help identify your company with the business, as well as provide product and service branding.
Cons:
A DBA is not a formal business structure or even a separate business entity but rather an extension of your company.
Since it’s not a separate LLC, there is a risk that each DBA will be liable for damages since they all fall under the same LLC.
Series LLC: Pros and Cons
If your state allows a Series LLC, consider these pros and cons before deciding what entity is best for your business.
Pros:
It limits the risk between each business by providing separate liability.
A Series LLC may make loan and bank approvals easier.
You can secure legal entities with different names with a Series LLC, something a DBA cannot accomplish.
Cons:
Compared to a single LLC, accounting and tax filing becomes more complex and costly.
Depending on the state, you may have to pay annual fees and costs for each LLC and also meet compliance requirements for each, which can become more complicated and costly.
Benefits of Forming a Series LLC Over a StandardLLC
A Series LLC can be a great way to separate your business assets and divide the responsibilities for investment and debt into different areas or divisions of your company.
A Series LLC allows you to form multiple “mini-LLCs,” so to speak, and operate them all under a single umbrella company. Each LLC in your series would have its own members, bank accounts, debt, and other unique qualities that make up a typical LLC.
Operating in this fashion can also help you disperse and minimize any risk and liability that could be shared if you operated all your businesses under one single LLC.
Benefits of Forming a StandardLLC Over a Series LLC
The main benefit of forming a standardLLC over a Series LLC is the ease of formation and management. A standardLLC is not only simpler to set up, but you won't have to deal with the inconsistencies of Series LLCs as your business grows.
For example, if you wanted to expand your business to a new state that doesn't accept Series LLCs, you'd be in a pickle if you didn't choose a standardLLC business entity. And because the rules vary in the states a Series LLC is legal in, you might also run into issues when it comes to what you are held liable for in each state.
You'll also have to deal with multiple bank accounts and Registered Agents if you have a Series LLC, which, if you don't have several business partners, can get confusing — fast. That's why we recommend filing a standard (and free) LLC for most business owners.
Getting the Right Advice
Whether a Series LLC or standard LLC is the best choice for you, it's good to be cautious and seek professional advice before making any major business decision. So if you have a complex business that you want to simplify and operate as efficiently as possible, you might want to meet one-on-one with a local CPA or seek the advice of a company like Bizee that specializes in LLC formation with state-specific expertise. The right decision could save you money, time, and years of legal headaches.
A series limited liability company, commonly known as a series LLC, protected cell company, segregated account company, or segregated portfolio company, and sometimes abbreviated as SLLC, is a form of a limited liability company that provides liability protection across multiple "series" each of which is theoretically ...
can be a great way to separate your business assets and divide the responsibilities for investment and debt into different areas or divisions of your company. A Series LLC allows you to form multiple “mini-LLCs,” so to speak, and operate them all under a single umbrella company.
Key Takeaways. Series LLCs may protect your properties better, as most lawsuits will be against one series, not the entire LLC. A series LLC can be more cost effective to set up and comply with tax obligations. Maintaining a series LLC is easier, as it bundles all your assets.
Series LLCs can be useful for LLCs that operate multiple lines of business or investments and want to insulate each line from risks incurred by the others. Common examples include real estate investors with several rental properties and investment firms with multiple investment strategies.
If the series LLC is registered in California, the first LLC in the series uses the SOS number as the identification number on its initial payment voucher. All other LLCs in the series must leave the identification numbers blank on their first payment vouchers.
Alabama, Delaware, the District of Columbia, Illinois, Indiana, Iowa, Kansas, Missouri, Montana, Nevada, North Dakota, Oklahoma, Puerto Rico, Tennessee, Texas, Utah, Wisconsin, and Wyoming all allow some form of the series LLC. California does not form domestic series LLCs, but a series LLC formed elsewhere can ...
Each series is a separate entity for liability purposes. A Series LLC typically only has to file one tax return because the earnings and losses of the underlying series flow through to the master LLC. Furthermore, it only needs one bank account. This makes a Series LLC great for holding multiple rental properties.
The most common type of LLC is a domestic LLC. A domestic LLC is formed and operates in the same state. A domestic LLC may also register to do business in a different state, where it would be considered a foreign LLC.
Another potential disadvantage of the series LLCs is that tax treatment and reporting requirements vary depending on the state. Sometimes, the rules aren't crystal clear. States might treat each series as a separate tax entity or have the master LLC and all series treated as a single entity.
If you already have an existing business, it is possible to convert your LLC to a Series LLC. However, the process is different depending on which state your LLC is registered in. Different states may have slightly different terminology, requirements or fees.
A series LLC may have different members and managers in each series. The rights and obligations of these members and managers differ from series to series. Each series may enter into contracts, sue or be sued, and hold title to real and personal property.
Technically it is advised to wait until your LLC is formed before the EIN is obtained, for two reasons: you want to make sure that the name you chose is in fact registered and was not rejected (for whatever reason), and secondly, you do want to provide the IRS with the exact date of formation.
Although the characteristics of a series LLC may seem great for any business, the truth is that it's not the best option for all business owners. There are additional annual fees for each subsidiary and you can end up making more work for yourself.
Unlike a traditional LLC, the Series LLC allows for the sorting of individual properties into separate compartments that are isolated and insulated from each other. This type of LLC is especially useful for dealing with real estate investors and other clients dealing with multiple assets.
In general, the states that require a filing have naming requirements. Typically, the name of the series will have to contain the name of the Series LLC and the series' name itself will have to be distinguishable on the state records from the names of other series and other domestic and foreign entities.
Depending on the situation, either option will have advantages and disadvantages. The number of owners in and of itself may not indicate the ideal choice. Sometimes, single business owners find it more beneficial to form a multiple-member LLC (for example, by making a spouse or other relative an additional member).
LLCs are classified as “pass-through” entities for tax reasons, meaning the business profits and losses will flow through to the personal tax return of each member. An LLC can also elect to be taxed as an S-Corporation or a C-Corporation. To be taxed as an S-Corporation, the LLC must file IRS form 2553.
The first of these is cost. An LLC is subject to state formation fees, as well as ongoing fees such as annual report fees and franchise taxes. Before you file the documents to form your LLC, you'll need to select a registered agent located in the state.
A series LLC may have different members and managers in each series. The rights and obligations of these members and managers differ from series to series. Each series may enter into contracts, sue or be sued, and hold title to real and personal property.
Introduction: My name is Aracelis Kilback, I am a nice, gentle, agreeable, joyous, attractive, combative, gifted person who loves writing and wants to share my knowledge and understanding with you.
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