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The Series LLC

July 22nd, 2008

The Series LLC is supposedly designed so that by setting up (and paying the fees on) one asset-protected LLC you can protect a number of properties in separate series within the one LLC. A graphic example follows:

1. ABC, LLC (a Series LLC)

a. Series One (duplex)          b. Series Two (fourplex)

The supposed benefit is that if there is a claim against the duplex in Series One a creditor could not reach the fourplex in Series Two. It is in a separate asset-protected series the promoters will claim, and therefore can’t be reached.

There are several problems with the series LLC. The first is, conceptually it doesn’t make sense. If you form one entity and it is sued, all of the assets within that entity are exposed - whether they are in a separate series (or buckets or whatever else the promoters use to describe them) or not. Significantly, there is not one court case extending asset protection to assets held in a separate series. I personally do not want to put my assets into an entity and hope for the best in a future court ruling. By using separate LLCs we have the certainty that assets in a remote LLC will not be exposed to claims brought against a target LLC. As mentioned, the series LLC has been sold as a state-fee-saving device. By using a series LLC holding, for example, four assets, it is claimed that you only have to pay one filing fee instead of the four fees for the four separate LLCs. That argument worked until the state of California decided that each series would be taxed as a separate LLC. So instead of paying just $800 for one series LLC in California you would pay, in our four-asset example, $3,200 for the series - the same as if you’d used four separate LLCs with greater certainty of protection. While not every state is as aggressive a tax collector as California, you can be certain that some will follow suit and charge a filing fee per series.

There are other issues surrounding the various unknowns posed by the series LLC. Will the supposed “internal liability shield” of the series LLC be respected in states that do not have series provisions? No one knows. In a bankruptcy of one series would a court consolidate all of the various series into the parent? No one knows. But you can be certain that by forming separate LLCs you will not face such sleep-losing unknowns.

It is interesting to note that the American Bar Association committee on uniform state laws looked into the series LLC. After reviewing all of the uncertainties and record keeping complexities of the series LLC, the ABA declined to endorse them. When some of the nation’s smartest lawyers take a pass on the series LLC, maybe you should too.

-excerpt from the newly released, revised and updated 2008 version of “Own Your Own Corporation” by Garrett Sutton

One Response to “The Series LLC”

1. Tomas Says:
   July 24th, 2008 at 10:15 am

   Mr. Garrett, as is probably very well known from my previous comments to your posts, I am a big fan of yours articles.

   As I stated a while ago, I was going to form my future biz. venture ( LLC) in state of Wyoming.

   Just wanted to share with you…

   It is Done…!

   Thank you for your great work on this blog..

   Tomas

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