The series limited liability company ("LLC") is a relatively new way to organize business ownership. The series LLC has all of the benefits of a traditional LLC, such as flexibility and limited liability, with some added benefits that may appeal to your business such as the potential for a reduction in administrative costs and the further isolation of liabilities.
The series LLC is a group of mini LLCs all under one master LLC. This is a very similar concept to a parent corporation with many subsidiaries. Each mini LLC is independent from the other mini LLCs because each mini LLC has its own members, is only liable for its own debts and obligations, and can hold its own assets. The master LLC acts like an umbrella LLC or a holding company that controls all of the mini LLCs in the series. The series LLC started in Delaware and eventually became recognized as an entity type in Kansas and Missouri.
A series LLC is ideal for someone who wants to form multiple LLCs within one large conglomerate without changing the function or business operations of each individual LLC. This is common for real estate investors or property management companies with multiple properties. A series LLC could also be used for a business with several different divisions or product lines. Each division could be its own mini LLC, thereby separating or limiting the liability to each division. Because each mini LLC is its own legal entity, each mini LLC must maintain separate corporate formalities such as a separate corporate book and its own financial accounts.
Not all states recognize the series LLC and formation procedures vary among the states that do. To form a series LLC in Kansas, the members must file Articles of Organization for the master LLC and then obtain a Series Limited Liability Company Certificate of Designation for each of the mini LLCs. The master LLC’s operating agreement must be carefully drafted to ensure that (i) a series LLC is specifically permitted and (ii) each mini LLC has limited liability (i.e. only liable for liaiblities within the mini LLC).
To form a series LLC in Missouri, the members must file Articles of Organization for the master LLC and then file Form LLC 1A for each mini LLC. Similar to Kansas, the master LLC’s operating agreement must be carefully drafted to ensure that (i) a series LLC is specifically permitted; (ii) each mini LLC has limited liability (i.e. only liable for liaiblities within the mini LLC); (iii) each mini LLC must keep separate records, and (iv) the assets of each mini LLC must be accounted for separately.
Aside from isolating liabilities, a series LLC has other benefits such as potential reduced startup and administration costs. In Kansas, the filing fee for forming a stand-alone LLC is $160, whereas the filing fee for a master LLC is $250 and each mini LLC $100. Thus, filing for one master LLC and two mini LLCs in a series would be $450 compared to filing three separate stand-alone LLCs which would cost $480. Additionally, Kansas requires ongoing administrative filing requirements for each LLC. However, a series LLC only needs to file one annual report for the master LLC and mini LLC, rather than separate reports for each LLC.
Because Kansas only authorized the series LLC in July 2012 and Missouri only authorized the series LLC in August 2013, Missouri and Kansas have not clarified whether series LLC owners can file one consolidated tax return or whether each LLC must file a separate tax return. Anyone contemplating forming a series LLC should consult their tax advisor about the tax implications applicable to their business. For more information on the series LLC or to see if it is right for your business contact Sheila Seck at 913-815-8485 or sseck@seckassociates.com.