If you’ve never heard of a Series LLC, don’t feel bad. They’ve been around for 13 years, but except for a few on the inside track, most people don’t know about them or use them. In fact, I recently had to explain what they were to a bunch of business attorneys! These are the people who advise and set up business structures, and not a single one of them had ever heard of a Series LLC.
It took us a month just to cover all the facts and myths about Series LLCs and now we’re finally to the strategy part. In a few weeks I’m going to announce our new coaching program. And guess what, Series LLCs will be one of the topics that we’ll talk about. That’s because I think many people are missing a way to set up structures easier and cheaper then they might realize.
Let’s start with a simple explanation of what a Series LLC actually is. You might have heard about the good business structures: S Corporation, C Corporation, Limited Partnership and Limited Liability Company. Lately, I’ve been recommending a layered structure in almost every circumstance. You’ll find that you will save filing costs plus have better asset protection if you use one of these type of structures. Examples are the LLC-S, LLC-C and the Trust Sandwich.
There is Series LLC law in a handful of states. Megan can tell you exactly how many. Other states, while not having Series LLC law of their own, have accepted foreign Series LLC in their own state. NOTE: California has NOT! If you’re in CA, think twice before you do a Series and then proceed with caution with a good advisor.
The Series starts with a filing with the state as a Series LLC. The LLC document is different and the filing is slightly different, but otherwise, it’s pretty standard to what you’ve been used to with other business structures. The difference, though, is when you want to add additional entities. Basically, if you’ve set up a Series LLC correctly, you’ll never need to create another entity or pay another filing fee. That’s because the Series allows you to set up individual cells underneath the original entity.
You heard me right – YOU set them up. Maybe that’s the reason why business lawyers aren’t jumping on the band wagon. You just saved a ton in filing fees AND set up fees.
You’ll need a specialist like Megan to set up the Series LLC initially and then after that, you can set up each cell in less than 2 hours. That means you have a new entity, with a new EIN and can go open up a bank account and start business.
Who would want this? Well, here are some of my clients that are currently loving the Series LLC: – Real estate investors w/ multiple properties – Serial entrepreneurs – Affiliate marketers – Real estate investors in high transfer tax states – Anyone who wants a simpler, cheaper way to get better asset protection
Now that I’ve said this, is this right for everyone? No. If you live in California, for example, you’ll get penalized for trying to use a Series with an $800 per cell even if the assets aren’t even in California.
You also need to be careful which state law you choose for your Series LLC. Illinois has the most developed case law, but they also have (in my opinion) a bizarre naming convention that you must use. I like Nevada’s law almost as well as Illinois and since it doesn’t have the strange wording requirement, I tend to recommend those where we can.