Summary

Most business owners are familiar with the Limited Liability Company (LLC), but fewer know about a variation called the Series LLC. A Series LLC allows organizations to separate and protect assets across multiple “series” or divisions within a single entity. In many cases, this structure can provide liability protection with greater flexibility and lower cost than traditional models such as holding companies or parent‑subsidiary arrangements.

That said, the Series LLC is a complex and evolving entity. It carries certain risks and unanswered legal questions that have limited its adoption primarily to sophisticated enterprises such as investment funds and special purpose entities.

However, as more states enact Series LLC legislation and courts provide guidance, this structure is gradually gaining traction. Over time, the Series LLC may become a more widely accepted option that business owners and attorneys should understand as part of modern asset protection and business planning strategies.

What Is a Series LLC?

The Series LLC is a relatively new business entity structure first introduced by Delaware in 1996. The idea was borrowed from Delaware’s statutory trust law, which mutual funds often used to create separate portfolios under one trust.

When Delaware extended the concept to LLCs, it gave businesses a more flexible vehicle than the statutory trust. While Series LLCs were initially popular with investment companies, today they can be used for a wide range of purposes.

A Series LLC consists of a “parent” or “umbrella” LLC with one or more individual series established beneath it. Each series can operate with its own:

• Assets

• Members

• Managers

• Purpose and investment objectives

If statutory requirements are met, the debts and liabilities of one series are enforceable only against that series’s assets and not against the assets of the parent LLC or any other series. In practice, this means each series functions like a separate LLC, but without the need to form multiple entities.

Example: Series LLC in Action

Imagine Larry and Curly each own a diner: Larry’s Diner and Curly’s Diner. If they form a traditional LLC to own both restaurants, the LLC’s assets are pooled together. If Larry’s Diner fails and the landlord sues for unpaid rent, the landlord could reach profits from Curly’s Diner to satisfy the debt.

Now suppose Larry and Curly form a Series LLC. Each diner is placed into its own series under the umbrella LLC. If Larry's Diner is sued, the landlord can only reach the assets of Larry’s series. Curly’s Diner’s profits and the umbrella LLC’s other assets remain protected.

Why Not Just Form Separate LLCs?

Larry and Curly could have formed two separate LLCs, but that approach often comes with higher costs and more administrative burdens. A Series LLC can streamline management and reduce expenses while still providing liability separation, though the availability and recognition of Series LLCs depends on state law.

States Permitting Series LLCs

The Series LLC is a creature of state law and can only be formed in jurisdictions that specifically authorize it. Not all states permit Series LLC formation, but the following currently do:

Alabama, Arkansas, Delaware, District of Columbia, Illinois, Indiana, Iowa, Kansas, Missouri, Montana, Nebraska, Nevada, North Dakota, Oklahoma, Puerto Rico, South Dakota, Tennessee, Texas, Utah, Virginia, and Wyoming.

In addition, some states that do not allow domestic Series LLC formation will still recognize Series LLCs formed elsewhere. For example, California permits foreign Series LLCs to register and conduct business in the state, even though California law does not authorize the creation of a domestic Series LLC.

It is also important to distinguish between true Series LLC statutes and so‑called “false series” laws. In certain states, LLC statutes reference “series,” but the term is used in the same sense as corporate stock series allowing different classes of membership interests with varying voting or financial rights. These provisions do not provide liability shields between series, and therefore do not authorize the formation of a genuine Series LLC.

What is the difference with a Series LLC?

The laws governing Series LLCs vary significantly from state to state, but in general, the formation process mirrors that of a traditional LLC. A Series LLC is created by filing Articles of Organization or a Certificate of Formation with the state’s business entity filing office, typically the Secretary of State.

A Series LLC is subject to all of the provisions of the LLC law as a traditional LLC except for those that specifically apply to Series LLCs, such as the recordkeeping and liability limitation provisions. That means, for example, a Series LLC will be required to appoint and continually maintain a registered agent and file an annual report.

The key distinction is that the formation document must include a statement authorizing the LLC to establish separate series that are insulated from the liabilities of other series and the umbrella LLC itself. Some states provide specific forms for Series LLC filings, while others require the organizer to add this language manually.

How Do You Form or Establish a Series?

The process of forming a series within a Series LLC depends heavily on state law. Broadly, states take three different approaches:

1. Operating Agreement Only: In some states, a series is established directly in the Series LLC’s operating agreement. No separate filing is required.

2. State Filing Required: Other states require the filing of a document (often called a certificate of designation or certificate of registration) with the state’s business entity office.

3. Hybrid Approach (Delaware & Texas): These states recognize two types of series:

• Protected Series: Established in the LLC agreement with no filing required.

• Registered Series: Requires filing a certificate of registered series with the Secretary of State.

Naming & Administrative Requirements

1. Naming Rules: States that require filings typically mandate that the series name include the name of the umbrella Series LLC and be distinguishable from other series and entities on state records.

2. Annual Reports & Fees: Some states require each series to file its own annual report and pay separate fees.

3. Certificates of Good Standing: In certain jurisdictions, a certificate of good standing can be issued for an individual series, which may help with financing or business partnerships.

4. Service of Process: Generally, the Series LLC’s registered agent serves as the agent for each series.

Liability Shield Requirements

The most critical provisions of Series LLC statutes are those that establish the liability shield between series. To preserve this protection, most states require:

1. The formation document to include notice of the limitation of liability for each series.

2. The operating agreement to state that assets associated with a series belong solely to that series.

3. The books and records of the Series LLC and each series to separately account for assets, liabilities, and operations.

Failure to maintain proper records can result in the loss of liability protection, which is why Series LLCs are often considered unsuitable for individuals without strong bookkeeping practices or professional accounting support.

What Are the Main Reasons for Forming a Series LLC?

Organizations choose to form a Series LLC for several strategic reasons. While the structure is still evolving and not yet universally recognized, it offers unique advantages in certain industries and scenarios:

Cost Savings

One of the original benefits of a Series LLC was the ability to reduce formation costs compared to creating multiple separate LLCs. Although recent state laws requiring filings and fees for each series have narrowed this advantage, savings can still be realized. For example, in the mutual fund industry, regulatory approvals for a fund within a series are often obtained more quickly and at lower expense than if each fund were organized as a separate entity.

Flexibility

LLCs are known for their flexibility in structuring management and financial rights, with minimal statutory mandates. That same flexibility applies to a Series LLC and extends to each individual series, allowing members to tailor governance and profit‑sharing arrangements to their specific needs.

Holding Company Opportunities

The Series LLC is a natural fit for holding companies, which typically own but do not operate their portfolio businesses. By placing each business into its own series under a single umbrella LLC, the holding company can reduce administrative burdens while insulating each business from the liabilities of the others.

Real Estate Liability Protection

Real estate investors often find Series LLCs appealing. Each property can be placed into a separate series, so if one property becomes subject to litigation (for example, environmental cleanup costs) the assets of other series remain protected. In theory, this structure prevents liabilities tied to one property from spilling over into others.

What Are the Risks of Operating a Series LLC?

While the Series LLC offers clear advantages in certain scenarios, it also comes with risks and unresolved legal issues that business owners should carefully consider.

Tax Uncertainty

The IRS and state tax departments have not provided consistent guidance on how Series LLCs and their individual series should be treated for tax purposes. This lack of clarity can complicate filings and increase compliance risks.

Bankruptcy Ambiguity

Federal bankruptcy law offers little direction on Series LLCs. It remains unclear whether a Series LLC must file bankruptcy as a single entity or whether each individual series can file independently without affecting the others.

Beneficial Ownership Reporting (BOI)

Under the Corporate Transparency Act (CTA), LLCs must file BOI reports with FinCEN unless exempt. It is uncertain whether each individual series qualifies as a “domestic reporting company” subject to these requirements, creating compliance gray areas. While this law is no longer applicable to most companies, it can still present an issue in the future.

Securities & UCC Issues

Questions remain about how series will be treated under securities laws and how to properly perfect a security interest in the assets of a debtor series under the Uniform Commercial Code (UCC), particularly when a series is established solely in the operating agreement without a separate registration filing.

Risk of Commingling Assets

Maintaining separate books and records for each series is critical. Commingling assets or sloppy accounting can jeopardize the liability shield. What is less clear is whether minor errors are enough to pierce the shield, or whether violations must be material.

Interstate Recognition Issues

Another major risk arises when a Series LLC or one of its series conducts business in a state that does not authorize Series LLCs. Issues can arise around, for example, foreign qualification of the series, whether the state will recognize the liability shield between series, and if courts would disregard protections granted by the formation state.

Factors to Consider Before Forming a Series LLC

All of the advantages and risks of using a Series LLC should be carefully weighed before deciding whether this structure is right for a particular business or venture. Although forming a Series LLC can be relatively straightforward, it remains a complex and often misunderstood entity.

An experienced corporate service provider can assist with filing the formation documents, providing the registered agent, filing annual reports, obtaining certificates of good standing, and handling other compliance needs. Still, the guidance of legal experts familiar with Series LLCs is highly recommended to ensure that all requirements are met and liability protections are preserved.

It is also important to recognize that the liability protection offered by a Series LLC is not absolute. Because the structure has yet to be thoroughly tested in court, the extent of its protections remains uncertain. Those seeking greater certainty in risk mitigation may wish to consider alternative structures, particularly if they anticipate conducting business in states outside the state of formation.

Conclusion

The Series LLC offers a variety of intriguing benefits and protections. Yet it remains a relatively new and complex business structure and one that is still not widely understood. Because the Series LLC has not been extensively tested in court, its liability shield remains somewhat theoretical. Business owners operating across state lines should proceed with caution, as it is uncertain whether courts in non‑Series LLC jurisdictions will respect the liability protections granted by the state of formation.

For now, most business owners seeking to segregate assets and ensure liability protection may find that forming separate, distinct LLCs is the safer and simpler option. That said, as laws evolve and the business and legal communities grow more comfortable with the concept, the Series LLC may well become a more popular and mainstream choice in the future.

If you or your organization want to explore whether a Series LLC is right for your business, our knowledgeable Florida business attorney team and Rhode Island business attorney team are ready to assist. Contact our office today at 401‑272‑8300 or complete our online form to speak with an experienced business law attorney. We’ve also addressed some of the most frequently asked questions below to help guide your decision.

Frequently Asked Questions About Series LLCs

1. What is a Series LLC?

A Series LLC is a type of limited liability company that allows multiple “series” or divisions to exist under one umbrella LLC. Each series can have its own assets, members, and liabilities, functioning like a separate entity while remaining part of the parent LLC.

2. How is a Series LLC different from a traditional LLC?

A traditional LLC is a single entity, whereas a Series LLC can contain multiple series under one umbrella. Each series can be insulated from the liabilities of the others, offering asset segregation without forming multiple LLCs.

3. Which states allow Series LLCs?

Not all states permit Series LLCs. States like Delaware, Texas, Illinois, and Nevada authorize them, while others may recognize foreign Series LLCs formed elsewhere. Always check your state’s laws before forming one.

4. What are the main benefits of a Series LLC?

Potential cost savings compared to forming multiple LLCs, flexibility in structuring management and ownership, liability protection between series, and useful for holding companies and real estate investors.

5. What are the risks of operating a Series LLC?

Risks include unclear tax treatment, unresolved bankruptcy rules, questions about interstate recognition, and the need for strict recordkeeping. The liability shield has not yet been widely tested in court.

6. How do you form a series within a Series LLC?

Formation requirements vary by state. Some states allow series to be created in the operating agreement, while others require filings such as a certificate of designation. Delaware and Texas recognize both “protected series” and “registered series.”

7. Who should consider a Series LLC?

Series LLCs may be attractive to real estate investors with multiple properties, holding companies managing multiple businesses, or investment funds or special purpose entities.

However, they may not be ideal for small businesses without strong bookkeeping practices.

8. Is a Series LLC safer than forming multiple LLCs?

Currently, forming separate LLCs is considered the more reliable option because the liability shield of Series LLCs has not been extensively tested in court. A Series LLC may become more popular as laws evolve and courts provide clarity.