CPA Practice Advisor - 31

FEATURE

What is a Series LLC and Why Your
Clients Should Care
By Nellie Akalp

A SLOWDOWN IN the economy means your clients may have some time
on their hands to get their businesses better organized. One option you
might suggest is for them to better protect their assets by setting up a
series limited liability company or SLLC for short. Here is what to tell your
clients about structuring their business as an SLLC and what protections
the entity offers.
WHY A SLLC?
The series LLC allows business owners to
divide multiple investments and debts and to
operate each LLC as a separate entity with its
own name, bank account, and recordkeeping.
Under the master LLC, each separate entity
can conduct business independently and
segregate membership interests, assets,
liabilities, and operations.
For example, if your client owns rental
properties, your client can operate each of
the rental properties as a separate legal
entity within an SLLC. The benefit is in the
protections the separate LLC provides. If
something happens and a tenant decides to
sue your client in court, the liability would
be limited to the assets of the one property
LLC and not everything under the master
LLC. Likewise, any debts or investments for
the individual property belong solely to the
one property.

HOW AN SLLC WORKS?
Your client has the option to have different
members and managers run each LLC entity
and your client may choose to grant each
manager different rights and responsibilities.
Each individual entity can secure its own
contracts, pay its own debts and buy its own
assets without affecting the other entities
under the SLLC.
Most important, the SLLC offers your
clients substantial liability protection. Like
a corporation with subsidiaries, one entity's
assets are protected from the liability
risks of the other LLCs under the master
SLLC-without having to pay the additional
formation fees. When your client sets up a

series LLC, they pay just one formation filing
fee no matter how many LLCs are formed
under the master. And like regular LLCs,
series LLCs are also more flexible and simpler
to form than a corporation.

complete operations of the master SLLC and
then subsequent operating agreements for
each entity under the master. Each operating
agreement should outline any unique rules
applicable to the individual entity.

FORMING THE SLLC

CONVERTING TO A SERIES LLC

Currently, not all states allow the formation
of series LLCs. Series LLCs can be formed in:
* Alabama
* Delaware
* The District of Columbia
* Illinois
* Indiana
* Iowa
* Kansas
* Missouri
* Montana
* Nevada
* North Dakota
* Oklahoma
* Tennessee
* Texas
* Utah
* Wyoming
* Wisconsin
* Puerto Rico
In California, you cannot form an SLLC,
but you can register an SLLC from another
state.
The steps to forming an SLLC are similar
to a traditional LLC and require your client to
file Articles of Organization with the Secretary of State. Your client will need to indicate
in the Articles of Organization the plans and
authorization for subset LLCs.
Your client also needs to create operating
agreements to detail the guidelines for the

What if your client already owns an LLC, can
the client make the switch to an SLLC? The
answer is yes, however the process varies by
state. In general, the LLC members must file
an amendment to the Articles of Organization
stating the conversion from an LLC to a series
LLC. A new series LLC operating agreement
also needs to be drafted indicating how the
master LLC will be managed. In this case,
filing an amendment is not sufficient. It's also
a good idea to use SLLC in the official title,
such as Your Business, SLLC.

TAX ISSUES
Only the master LLC is required to file a tax
return and that will include information
from all the series LLCs. Your accounting
firm should guide your client through the
complicated documentation, as tax treatment
at the state level may be different than at
federal level. ■
Nellie Akalp is a passionate entrepreneur, business
expert and mother of four. She is
the CEO of CorpNet.com, a trusted
resource and service provider for
business incorporation, LLC filings,
and corporate compliance services
in all 50 states. Nellie and her team
recently launched a partner program
for accountants, lawyers, and business
professionals to help them streamline the business
incorporation and compliance process for their clients.

AUGUST 2020 ■

www.CPAPracticeAdvisor.com

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