Understanding the Essential Elements of a Series LLC and its Benefits.

A Series LLC is a new form of LLC that may be formed under the laws of some states. A Series LLC is a master LLC with separate units (series) operating independently of the master LLC. California law does not allow for a Series LLC to be formed in California. However, a Series LLC that is formed under the laws of another state may register with the California Secretary of State and transact business in California.

Key Features.

• Each unit has its own owners (members) and may be managed separately from the master LLC and other units.
• Each unit must maintain separate books and records.
• As with a regularly formed LLC, the owners (members) of each unit are not financially responsible for the unit's debts and obligations.
• A unit may conduct part of the business of the master Series LLC, or may conduct a wholly different business.
• Each unit has its own assets and liabilities. The members of each unit are treated under the laws of the state where the Series LLC is formed as owning an interest in only that unit, and have no rights as members of one unit in the assets or income of any other unit.
• Each unit is liable only for its own debts and obligations. In general, creditors of one unit may only reach the assets of that unit.

Further Considerations.

Currently, the Internal Revenue Service has not stated whether a unit within a Series LLC is a separate entity from the Series LLC for tax purposes. The Franchise Tax Board has taken the position that if each unit has the features listed above under the laws of the state where the Series LLC was formed, then each unit will be treated as a separate entity for filing and tax purposes. In that case, the same filing guidelines and estimated taxes that apply to a regular LLC will apply to each unit of a Series LLC.

Forming a Series LLC may have additional costs of administration, therefore evaluating your business goals should be analyzed carefully before selecting the Series LLC in California.