Delaware Series LLC Formation: Everything You Need to Know
The Delaware Series limited liability company is an LLC that does not have a predetermined structure3 min read
Delaware series LLC formation is easy when you know what to do. The Delaware Series limited liability company is an LLC that does not have a predetermined structure. You can think of your entity as an umbrella when forming a Delaware series LLC. Under this umbrella, you can add an indefinite number of LLCs with each having the ability to act on their own.
Each has limited liability protection. Furthermore, each entity is protected from the other entities in the series. However, a series limited liability company has never been tested in court. The entity could be invalid if a court rules against a series LLC. A Delaware Series LLC is still probably the safest because the validity of the structure is handled by Delaware's business court, the Court of Chancery.
The first series LLC was created by top lawyers in Delaware in 1996. Their goal was to form an entity that is unique and consisted of individual and separate interests. In Delaware, each series:
- Has its own members
- Holds its own assets
- Conducts unique operations
- Has different business objectives
You can use a series LLC for many reasons, but they are often used by property investors and by companies that own several brands. Similar to the "segregated portfolio companies" created in the British Virgin and Cayman Islands, the series LLC is like a honeycomb.
It is a mixed version of multiple LLCs owned by a holding company and a limited liability company that has divisions. Each LLC in the series has a different business focus.
Steps to Form a Delaware Series LLC
Forming a series LLC in Delaware is easier than you may think. All you have to do is follow the steps below:
- First, with the Division of Corporations, you need to fill out a Certificate of Formation.
- On the fourth clause on the form you need to add the verbiage, “Notice is hereby given pursuant to Section 18.215(b) of the LLC Act that the debts, liabilities, and obligations incurred, contracted for, or otherwise existing with respect to a particular series of the LLC, shall be enforceable against the assets of such series only and not against the assets of the LLC generally, or any other series thereof, and none of the debts, liabilities, obligations, and expenses incurred, contracted for, or otherwise existing with respect to the LLC generally, or any other series thereof, shall be enforceable against the assets of such series.”
- Then, you need to pay a fee of $90 for filing and submit the Certificate of Formation (COF) to Delaware's Division of Corporations.
The LLCs in your series do not have to file separate Certificates of Formation. However, each LLC in the series must apply for their own employer identification number from the IRS. If you have not filed the Certificate of Formation yet, you need to put each LLC's structure, the managers, members, and tax structure assigned to each LLC. If you already filed the COF it needs to be updated to include the required LLC information.
What is the Cost Associated with Filing a Series LLC in Delaware?
Below are some of the fees or costs associated with setting up a series LLC in Delaware and payment information:
- Filing a Certification of Formation for a Delaware series is $90.
- You pay the fee to the Delaware Corporations Division.
- The fee is the same regardless of the number of LLCs in the series.
- The series also only has to pay one corporation tax fee each year.
- The annual fee is due by June 1 of each year in the amount of $300.
How is a Delaware series taxed?
Each LLC in the series is able to choose how they want to be taxed. The IRS views each LLC in the series as a separate tax entity. Each chooses their own designation, so one has the ability to be an S Corp and another can be a C Corp. It seems confusing, however, if you think of each as a totally separate entity, it is fairly simple.
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