Delaware corporate law offers a unique business structure known as the Series LLC. This structure allows for multiple LLCs under one umbrella, with each Series functioning as an independent legal entity. This means that each LLC within the Series is responsible for its own debts, liabilities, and obligations. Each LLC can have distinct assets, members, and business activities, all while being shielded from the liabilities of the other LLCs in the Series.
Advantages of a Series LLC
The biggest advantage of a Series LLC is that it is treated as a single entity for taxation purposes. This allows you to form multiple businesses under one Series LLC and pay a single franchise tax of $300, along with accounting fees, rather than managing separate fees for each LLC.
Potential Challenges with Series LLCs
Despite its benefits, there are some challenges associated with Series LLCs:
1. Legal Uncertainty: Although each LLC within a Series is theoretically separate, the concept hasn’t been thoroughly tested in court. A judge could potentially rule that the LLCs are not independent entities.
2. Tax Ambiguity: Federal tax policy for Series LLCs remains undefined. While a Series LLC is taxed as one entity, there have been suggestions that the IRS may require separate taxation for each Series in the future.
3. Interstate Taxation: It’s unclear how Series LLCs or their individual Series will be taxed when operating in other states.
4. Banking Issues: Many banks have yet to fully adapt to the concept of Series LLCs, leading to difficulties in opening separate bank accounts for each Series under the LLC.
5. Limited Expertise: Since Series LLCs are relatively new, finding legal professionals with deep expertise in this area can be challenging.
Our Recommendation
Given the current uncertainties surrounding Series LLCs, it may be worth waiting for these issues to be resolved before starting one. However, if you’re set on forming a Series LLC or have any questions, we’re here to help.
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