Nevada Series LLC Operating Agreement
A Nevada Series LLC operating agreement is a legal agreement written by the members of the LLC.3 min read
2. Segregating Assets in a Series LLC
3. Forming a Series LLC
A Nevada Series LLC operating agreement is a legal agreement written by the members of the LLC. The operating agreement explains how the business will operate, the rights and responsibilities of the LLC members, internal processes, and other important operating guidelines.
The Series Limited Liability Company
A Series Limited Liability Company (LLC) is a type of LLC that provides liability protection across various series or "cells," each of which is protected from liabilities arising from all of the other series. It's made up of a master or umbrella LLC and a series of subsidiary businesses. Each subsidiary may operate in a different industry and may have their individual ownership interests.
A Series LLC is most commonly formed to protect assets. Also, it helps to reduce costs related to creating numerous LLCs and formation fees. Series LLCs were originally created for the purpose of streamlining collective investments and structured financial positions such as ETFs (Exchange-traded Funds) and mutual funds. Expenses are reduced because only the master LLC needs to be maintained with the Nevada Secretary of State (SOS), decreasing renewal and formation fees. Also, the master LLC may only be required to file one income tax return with the Internal Revenue Service (IRS).
In 2005, Nevada and many other states added the Series LLC to the list of entity forms. This opened the opportunity for a Series LLC to enter into contracts, grant security interests, sue or be sued, and hold title to assets, just like any other type of entity. A Series LLC can be formed in two ways:
- With a single member (not recommended).
- With multiple members.
If the Series LLC has opted not to operate as a disregarded entity for tax reasons, members can choose to either file either an 1120 (corporate) or 1065 (partnership).
There are two main benefits to a Series LLC:
- The opportunity to form and then renew as only one business rather than formulating multiple entities.
- Only one tax return needs to be completed by the master LLC which may include a number of subsidiary LLCs under its umbrella.
All contracts, notes, deeds, and agreements are signed under the name of the corresponding subsidiary LLC. Additionally, each subsidiary name must include the master LLC's name in the title (e.g. "Willowbrook Properties, a Nevada Series LLC"). By doing so, it provides notice and discloses the subsidiary's existence. The name of each subsidiary should be properly capitalized. There should be no ownership interest between subsidiaries and no co-mingling of funds. If each subsidiary is to be respected and treated as a separate company, along with its own legal identity, then it must act accordingly.
Segregating Assets in a Series LLC
An asset may be segregated within a Series LLC by forming a separate business entity for each asset. The purpose of segregating the asset is to protect it from liabilities and lawsuits from other cells. Certain states will allow the master LLC to file the one and only filing fee for the umbrella LLC. Remember, there is currently very little legal precedent regarding Series LLCs. Therefore, if you're operating in a state that doesn't grant this special barrier of protection, you have no guarantee that your assets will be covered.
For example, if the master Series LLC is registered in Delaware and the business operates in Illinois, then any legal proceedings will most likely be subject to Illinois state law. Certain states may recognize the Series LLC, but they may not recognize the liability protection between cells. In other words, if you're operating a Series LLC in a state that doesn't automatically grant liability protection between cells, then you're taking a massive risk by operating within that state.
Forming a Series LLC
Starting a Series LLC is much easier than you may think. The formulation process is quite similar to forming a regular LLC. When forming a Series LLC, simply create the same articles of organization that you would for a standard LLC but include a provision that authorizes for the formation of cells within the entity. Currently, the following states permit the formation of a Series LLC:
At this time, Wisconsin, Minnesota, and North Dakota also allow for the creation of a Series LLC but do not grant liability protection among cells.
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