Does Your Business Need a Series LLC in Illinois?
Illinois is one of only eight states where businesses can establish Series under limited liability companies (“LLCs”). This gives Illinois businesses an interesting option.
A Series LLC is a unique structure that combines the flexibility of a partnership with the liability limitation of an LLC. Like a traditional Limited Liability Company (“LLC”), the Series LLC can offer its owners, known as members, protection from personal liability for the LLC’s obligations, including creditor debt and lawsuit judgments.
Series LLCs are formed similarly to a corporation with subsidiaries. There is a master umbrella with “series” entities under it. Each “series” has its own property, business, liabilities, and members.
If you are trying to determine whether a Series LLC is right for your business, ask yourself these questions:
Is there more than one business involved in the formation of this entity? Series LLCs are ideal for businesses or individuals that own and operate multiple businesses properties and want to share profit and loss, but still maintain separate operations. For example, a developer with multiple properties can establish a Series LLC owning each parcel in a separate series within the single master LLC. Similarly, a developer and a builder could set up a Series LLC, which would segregate and protect the liabilities of their respective businesses.
Do I want to retain “pass through” taxation but separate the entities involved? Organizing as a Series LLC eliminates “double taxation”, which is common in C-Corporation structures. “Double taxation” occurs when profit is taxed first at the entity level, and then again based upon each owner’s allocable share of income or distribution. For federal income tax purposes, LLCs are treated as partnerships so income or loss from the LLC “passes through” from the LLC to the members. “S Corporations” also offer “pass through” taxation, but they are not allowed to have subsidiaries like a Series LLC.
Can the bookkeeping be kept separate among the entities involved? Each member is responsible for reporting his or her allocable share of income or loss directly on the member’s federal income tax return. Usually, only one tax return is filed for the LLC, to include the net income or loss from each series. However, each series must have its own EIN number and keep separate books and records.
Is liability protection a priority between the involved entities? Since the assets and liabilities of each Series are segregated, Series LLCs offer solid liability protection between the entities. Your company is safe from creditors who may need to enforce liabilities against another member of the series.
Would forming a Series LLC save administrative costs over forming separate LLCs for each entity? Compare the cost of setting up or maintaining your business as an LLC as opposed to a Series LLC. For example, three separate entities could establish a Series LLC or three separate, independent LLCs. If they organized as a Series LLC, the total fees at the end of the first year would be $1,100 (the $750 filing fee to establish the LLC (Form LLC-5.5(s), plus $50 registration for each series (Form LLC-37.40) and a $250 charge each year thereafter for mandatory filing of the annual report (LLC-50.1). The administrative costs for establishing three separate LLCs would be $2,250 ($500 filing fee per LLC, plus $250 mandated annual report filing fee per LLC).
Do you want to classify the members in the Series LLC? In many entities, such as the S- Corp, members are limited to a single stock classification. In a Series LLC, members can designate different classifications of membership and even include their subsidiaries under the same LLC. There are also has fewer limitations regarding membership, compared to S-Corps.
Do you want all the bases covered? At Gardi & Haught, we put together a comprehensive operating agreement between all members in the Series. We ask the important “what if” questions to address contingencies in case of unexpected changes in profit/loss, management, ownership, etc. to ensure your business runs smoothly now and in the future.
If you answered “yes” to all these questions, a Series LLC may be the best choice for your business. Contact our Series LLC specialist, Isaac Franco, at 847-944-9400 for a free consultation.
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