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Tax Blog

Series LLCs in Delaware

A series limited liability company is a limited liability company that is allowed to form multiple “series” that are shielded from liability against other series. For example, imagine a tree. The trunk of that tree is the main LLC that is formed, often referred to as the “parent LLC” or “umbrella LLC”. The branches of the tree are the series formed as entities that are separate from each other and only connected via the main LLC. The series LLCs are beneficial because they are treated as separate entities for liability purposes, but for tax purposes they are all a part of the same main LLC therefore only one tax return needs filed. Recently, Delaware allowed for two new series LLCs to come into existence, the protected series LLC and the registered series LLC.

If you previously had a series LLC in Delaware, congratulations because you now have a protected series LLC. The designation was most likely made to distinguish the registered series LLC, which will be discussed later. With the protected series LLC, there is an annual franchise tax of $300, regardless of the number of series available. Each series can have a unique and independent name, but a Certificate of Formation and a Certificate of Good Standing is only available for the main LLC. Some states will recognize the series, and sometimes they are even treated as an individual LLC.

However, the registered series LLC is cutting-edge type of business entity. The registered series LLC comes at a cost of a $300 franchise tax in addition to $75 per series. When it comes to the name, each series must begin with the main LLC’s name. For example, a business owner forms “Aaron’s Apples, LLC”, a registered series LLC in Delaware. Alan intends to do business in both Dover and Wilmington, but wants the locations to have separate bank accounts and separate contracts with vendors. Alan’s businesses must be named “Aaron’s Apples, LLC-Dover Series” and “Aaron’s Apples, LLC-Wilmington Series” to comply with the naming requirements of a registered series LLC.

It is still unclear as to how the registered series LLC will be viewed by other states due to its recent inception. It is also unclear on how it will be viewed by financial institutions, service providers, or other businesses because of their lack of knowledge on the topic. Some series LLCs already have a problem with explaining to financial institutions how their business is organized, but Delaware is attempting to eliminate that issue by allowing each registered series LLC its own Certificate of Formation and Certificate of Good Standing; two of the most commonly requested items when a company seeks financial assistance.

If you’re considering filing a series LLC or any other business entity, the professionals at The Center for Financial Legal and Tax Planning are more than equipped to answer any questions with regards to business formations and would be happy to help.

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