Series LLC is now an option in Delaware
Posted by Gennine Cooper
July 22, 2020
Delaware has recently amended its statute to give more flexibility around the Series LLC – including allowing individual series to be registered! This allows the Series LLC to be a powerful yet cost effective corporate structure.
What is a Series LLC?
A Series LLC is one parent LLC where you can add different partitions, or series, to your LLC underneath it. This can be useful for real estate investors who want to manage each property under its own registered series (underneath the same Series LLC) or any other business operation that prefers to keep different segments of the business separate from each other. In principle, each series is protected from liabilities that might arise from other series within the LLC.
How to Form a Delaware Series LLC
The first step is to form a Delaware LLC as the parent LLC. Additional language is required in the Certificate of Formation in order to form the LLC as a Series LLC rather than a regular LLC.
Once you have the Certificate of Formation ready to be filed, that along with the filing fee of $90 are submitted to the Delaware Secretary of State’s office.
After the LLC is formed, you would want to proceed as usual with the internal operating procedures of the LLC, including drafting the operating agreement, opening a bank account, and obtaining an EIN, if desired. In addition, the annual tax of $300 (as of March 2020) is due each year on or before June 1, starting with the year after you form the LLC.
How to Form the Registered Series of a LLC
Once the Parent LLC is formed, you can begin forming the series beneath it, called Registered Series in Delaware.
Each Registered Series should file a Certificate of Registered Series with the State of Delaware. The process is similar to forming a regular LLC – you file a form and pay the filing fee (also $90) to the State of Delaware. Each Registered Series must contain the name of the parent LLC. Because the benefit of having Registered Series under the Parent LLC is that each of the LLCs under the parent can operate as a separate company, each series can open its own bank account, keep its own separate records, have a different managing structure, obtain its own EIN, and operate separately and independently of the other LLCs in the series. All of this information is kept internal to the LLC.
One difference between the Series LLC and the Registered Series underneath it is that each Registered Series has an annual tax of $75 due to the State (as of March 2020) rather than the entire $300 LLCs are required to pay.
There is no limit to the number of Registered Series that can be formed under each Series LLC.
Possible Series LLC Drawbacks
Although there are many advantages to having a Series LLC, there are a few drawbacks as well.
- Because the series is so new, there are still many people (including lawyers, accountants, and bankers) who may not be well versed in what it means to have a Series LLC. It is important to do business with professionals who are familiar with this entity type.
The Series LLC legal structure has not been vigorously tested in court, therefore some legal questions related to the statute have not been answered. However, this is likely more of a concern in other states as they begin adopting the Series LLC as a new type; the Series LLC structure originated in Delaware in 1996, so Delaware is much further along in establishing documented case law. Have questions? Incserv can assist you with the formation process and the wording! Let us know you’re interested in forming a Series LLC and an Incserv agent will reach out to assist you.
Sara Flanagan, Systems Analyst