Illinois Series LLC: Everything You Need to Know
An Illinois series LLC can be a good alternative to the regular LLC legal structure for entrepreneurs who own more than one company. 5 min read
2. Series LLC in Illinois
3. Illinois Series LLC Statute
4. Creation of the Master LLC
5. Formation of Series
6. Separate Entity
7. Liability Protection
8. Filing Fees
9. Management of a Series LLC
10. Series LLC Voting
11. Series LLC Registered Agent
12. Series LLC Annual Reporting Requirements
13. Series LLC Dissolution
Updated November 10, 2020:
An Illinois series LLC can be a good alternative to the regular LLC legal structure for entrepreneurs who own more than one company. While it offers a more cost-effective solution, it also retains the benefits and flexibility of an LLC. To form a series LLC in Illinois, aspiring business owners should have a good understanding of the state's Series LLC Statute.
What Is a Series LLC?
Similar to a company with subsidiaries, a series LLC consists of an umbrella or master LLC that has multiple constituent cells, called "series." Each series is like a sub-LLC of the master company and has its own owners, business, property, and liabilities. This unique business structure combines the personal liability protection of an LLC with the versatility of a partnership. Like a regular LLC, it protects its owners, also referred to as members, from personal liability for its financial obligations, such as lawsuit judgments and debt.
A series LLC provides a cost-effective solution for business owners who have multiple enterprises. It enables them to keep each of their companies separate for liability purposes. This means that each series entity's assets will be safe even if the master LLC and its other series are facing liability. Also, a series LLC is not subject to double taxation. It handles taxes the way a partnership does, passing them through to its members' personal tax returns.
Series LLC in Illinois
Illinois is one of the eight states in the U.S. that allow businesses to form series entities under an LLC. The Illinois Secretary of State regards a series LLC as one entity filing a single annual report and paying a single fee.
Illinois Series LLC Statute
On August 16, 2005, the Series LLC Statute (805 ILCS 180/37-40) was added to Illinois' Limited Liability Company Act, making the state the fifth in the country to allow the formation of series LLCs. Illinois' statute contains most of the provisions that are found in Delaware's statute, which was established in 1996. However, it also has additional provisions for creating greater separation among series entities.
Creation of the Master LLC
Similar to an ordinary LLC, the master LLC is formed by submitting articles of organization to the Secretary of State. However, Illinois requires applicants of series LLC to complete a specific Articles of Organization form, which is Form LLC-5.5(S). This form contains the language that the statute requires to establish that the company is a series LLC.
Formation of Series
After filing the Articles of Organization, the master LLC is required to submit a Certificate of Designation, which serves to designate each series entity. The purpose of this procedure is to ensure that one series entity's liabilities can only be enforced against its assets and not the assets of any other series entity. Besides providing the name of a certain series, the names of its managers or member-managers must also be included in the Certificate of Designation.
Unlike the statutes of other states, Illinois' Series LLC Statute contains provisions that specifically state that each series entity must be treated as a distinct and separate entity under all circumstances. According to the statute, a series entity may in its own name:
- Hold title to property.
- Contract with any party.
- Issue security interests.
- Sue or be sued.
Generally, the provisions in the Illinois LLC Act that apply to LLCs, their members, managers, and transferees are also applicable to every series entity in a series LLC.
The Illinois Series LLC Statute states that a series LLC must meet certain conditions to ensure that one series entity's assets will be protected from another series entity's liabilities. For instance, a series is required to maintain separate records and keep its assets separate from those of the master LLC and other series entities.
Therefore, even under the statute, it seems that a series of LLC's liability protection may be easier to compromise than that of separate regular LLCs. For regular LLCs, one instance of commingling will not automatically cause an LLC's assets to be subject to an affiliated LLC's liabilities. However, the same commingling may cause a series entity in a series LLC to lose its liability protection.
Many business owners simply choose to form a series LLC, rather than individual LLCs, to avoid multiple filing fees. You'll pay one filing fee for the series LLC and then create your series under the master LLC. The same goes for annual reporting fees, so there's the potential to save quite a bit of money when you form a series LLC.
Management of a Series LLC
Each of the series entities formed under a series LLC can have their own members and managers and even management structures. The actions of members and managers across the different series do not directly affect the others. Each of the individual series should use their own operating agreements to designate managers and their duties. The series LLC or the parent company should keep records of all members and managers of the LLCs under its umbrella.
Series LLC Voting
Certain members of a given series may only have voting rights within their cell, but not in the other cells or the series LLC as a whole. This should all be spelled out clearly in the series LLC's and each series' operating agreements. Members can be given voting rights as the series LLC owners see fit.
Some series LLC owners will choose to form classes of members who do and do not have voting rights, or some may have votes that count for more than others depending on managerial responsibilities or initial investment amounts. Basically, the voting within a series LLC is at the discretion of its organizers.
Series LLC Registered Agent
The series LLC must choose a registered agent in the state of Illinois and that same agent will act as the agent for all of the cells under the series LLC. Most professional registered agents charge the same fee for serving a series LLC or a regular LLC. This makes the cost of a registered agent, if the owners choose to pay for one, cheaper for a series LLC versus multiple LLCs.
Series LLC Annual Reporting Requirements
Another advantage of creating a series LLC versus multiple LLCs comes with the annual reporting requirements. Illinois only requires the series LLC to file annual reports, but not all of its cells. In the state of Illinois, if your series or master LLC is in good standing, so are all of its cells.
Series LLC Dissolution
If a series LLC dissolves, all of the LLCs under it are automatically dissolved. Series LLCs can continue functioning without a dissolution date unless they desire to set one in their articles of organization. If one of the series within the entire LLC dissolves, the others may continue doing business and may remain unaffected.
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