California Series LLC: Everything You Need to Know
A California series LLC is a type of limited liability company (LLC) that can form other LLCs, called series, under its umbrella.3 min read
A California series LLC is a type of limited liability company (LLC) that can form other LLCs, called series, under its umbrella. Unfortunately, it is not possible to form a series LLC in California. Instead, the company must be registered as a foreign LLC.
What Is an LLC and What Is Its Purpose?
An LLC has a variety of uses and can be a great way to structure your business. For example, an LLC can be a great solution for holding valuable real estate while protecting yourself from personal liability.
It's common for people to own several investment properties, and to protect both these properties and themselves, they will put them into an LLC. Some people choose to spread their investment properties across multiple LLCs. While this may not be a popular practice, it is extremely effective.
Separate Your Assets
The most effective method of protecting your assets is to keep them separate. If it's possible, you should use a distinct LLC for each individual asset. However, if this is not possible, you should research the equity of all your investment and the potential for liability of each.
With this research in hand, you can properly group your assets into LLCs. For instance, if you have high-value real estate, such as a beach house, you would place it in a different LLC from a rental property in a bad location. However, if you own multiple properties in the same location with similar amounts of equity, it is acceptable to group them to the same LLC, as their levels of risk will likely also be the same. As you might expect, this solution for protecting your assets can get more expensive the more assets that you own.
What Is a Series LLC?
Every LLC will be a distinct entity, and can have their own of the following:
- Managers and Members.
- Bank Accounts.
- Records and Books.
As long as you follow all rules and regulations, every LLC that you form will be treated separately for legal purposes. The biggest advantage of using a series LLC is that every entity will be shielded from liabilities and debts of the other entities. It's important to remember that a series LLC is different from a traditional LLC that has instituted different membership classes.
Some of the characteristics of a series LLC include the following:
- Members that only have an ownership stake in one series and do not possess an interest in any of the other series.
- Separate records and bookkeeping for each LLC.
- Every series is responsible for its individual liabilities and possesses individual assets.
- Series members are not personally liable for the debts of the series.
- All series are managed individually and not as a group.
New regulations for series LLCs were proposed by the IRS in 2010.
These rules changed how series LLCs are treated for tax purposes. Using the “check the box” system of classification, series LLCs can be treated as a C or S corporation, a disregarded entity, or a partnership.
Practically, this means that every LLC in a series could be taxed differently depending on the classification chosen by the series members.
Structure of a Series LLC
Many states allow a single LLC to have multiple series, which is beneficial because individual series can only be held liable for their own debts, protecting the other LLCs. This means that LLCs are allowed to choose members, interests, and duties for each series separate from the others. In addition, LLCs can determine rights to losses and profits for each series.
States that have passed these rules will treat every series in an LLC as its own legal entity. This is very attractive to many people as it provides them with an effective method for shielding different assets from liability. For example, if you have two series in an LLC and two properties you wish to protect, you could put one asset into one series so that each will piece of property will be protected from the liabilities of the other. This provides the exact same liability protection of forming two individual LLCs.
Where Is the Series LLC Available?
Not every state allows for the formation of a series LLC. The following states currently allow you to choose this business entity:
- District of Columbia
- North Dakota
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