What is a Series LLC?
A Series LLC was first introduced to assist the mutual fund industry avoid filing multiple SEC filings for different classes of funds. The idea was to use one entity for all funds filing under one “umbrella”, but permit the funds individual activity to be conducted separately. Only a few states allow the creation of a Series LLC, one of which is Nevada.
What is the purpose of a Series LLC?
The purpose or utility of a Series LLC is to protect personal assets from a legal claim relating to real estate investments or business liabilities. Past practices involved forming a separate LLC for each business activity or investment property to protect the personal assets, as well as protect the entities from liabilities arising from each other. The formation of many entities increased the costs to the individual by paying annual state fees, and having to file a separate tax return for each LLC. The creation of a Series LLC allows a group of series, or cells, to each own distinct assets, incur liabilities, and have different managers and members, but all is filed under one umbrella LLC. The entities have liability protection from each other and protection for the individual, but reduce costs involved by filing one tax return and may qualify to pay only a single set of annual state fees. In certain circumstances it may also help the taxpayer qualify for additional safe harbor elections under the new Tangible Property Regulations. Make sure to consult a tax advisor before you decide to pursue the formation of a Series, LLC.
Due to its relatively new adoption (2005 in Nevada), the IRS will be constantly adapting the tax treatment of the Series LLC. States continue to pass legislation to follow suit, but at this time there are no court cases that support or deny the current tax treatment.