Key Takeaways

  • An Illinois Series LLC is a single LLC with multiple “series” or “cells,” each having separate assets, members, and liability protection.
  • Formed under the Illinois Limited Liability Company Act, it requires proper recordkeeping, separate accounting, and a notice of liability limitation in formation documents.
  • Popular among real estate investors and multi-business owners due to cost savings—only one filing fee, annual report, and umbrella operating agreement are required.
  • Each series can operate independently with its own contracts, bank accounts, and tax treatment, but interstate recognition is not guaranteed.
  • Risks include limited case law, uncertain bankruptcy treatment, and potential veil-piercing if records are not strictly maintained.

Illinois Series LLC

A Series LLC Illinois is an option for new business entities in the state as of 2005, creating a limited liability company that serves as an umbrella for separate companies formed within the Series LLC. An LLC, which is recognized as a business entity in every state, provides its owners personal liability protection from business debts and judgments. LLCs are considered pass-through entities for taxation, which means that the owner or owners report business profits and losses on their individual tax returns.

Although an LLC provides the limited liability of a corporation, this entity is easier to form. A Series LLC provides each separate business with protection from liability accrued by other entities within the series. In states without a Series LLC, you have to pay a separate filing fee to create each separate legal entity. Illinois and seven other states currently offer the Series LLC structure. Entrepreneurs who own multiple businesses and want to keep them legally separate can either establish multiple LLCs or one Series LLC with a separate cell within for each distinct business.

Each series in a Series LLC can operate a separate business and have separate assets; each is also granted protection from judgments and claims against another cell in the series. Each cell can have its own members, managers, and operating agreement. In Illinois, a Series LLC is only required to pay one filing fee and file a single annual report. As long as legal LLC requirements are met, debts and obligations of one sub-LLC cannot be enforced against any other sub-LLCs or against the series as a whole. Only the main Series LLC is required to file an operating agreement, though having a separate agreement for each cell is recommended.

Real estate management and investment companies that own several different properties often use the Series LLC as a holding company. This allows each separate property to receive limited liability. Other ventures that may benefit from a Series LLC are a woodworking or crafts business that serves different types of customers or a business that offers several separate service lines or products.

Although the Series LLC was established in Illinois several years ago, this entity has not yet been thoroughly tested in court. This means that another state might not treat each sub-company within the Series LLC as a legally separate entity. The IRS has not yet established Series LLC case guidelines, and little case law exists to establish how bankruptcy will affect a Series LLC.

Common Uses for an Illinois Series LLC

Illinois Series LLCs are often chosen by entrepreneurs and investors seeking to separate liability among distinct business lines or properties without forming multiple LLCs. Common scenarios include:

  • Real Estate Portfolios: Assigning each property to its own series to shield assets from liabilities tied to other properties.
  • Multi-Line Businesses: Operating separate service or product divisions—each as its own series—to isolate financial and legal risks.
  • Franchise Ownership: Grouping multiple franchise locations under one Series LLC, with each series representing a location.
  • Investment Groups: Managing different investment assets in distinct series to protect each from claims against the others.

This structure offers operational flexibility while streamlining administrative and compliance costs compared to multiple standalone LLCs.

Legal Framework of an Illinois Series LLC

The Illinois Series LLC operates under the Illinois Limited Liability Company Act (805 ILCS 180), which establishes the guidelines for creating and managing a Series LLC. This law allows LLCs to designate separate series within the umbrella LLC, each with distinct legal rights and obligations. The key statutory requirements include:

  • A notice of limitation of liability in the Series LLC’s Articles of Organization.
  • Maintaining separate records for each series, ensuring independent accounting and ownership structures.
  • The ability to contract independently, enabling each series to enter legal agreements on its own.

While Illinois recognizes the Series LLC as a valid business entity, other states may not. If a Series LLC conducts business across state lines, legal challenges may arise, and additional registrations may be required.

Liability Protection Scope

Under Illinois law, each series within a Series LLC is treated as a separate entity for liability purposes, provided statutory requirements are met. This means debts, obligations, and liabilities of one series generally cannot be enforced against another series or the master LLC. However:

  • Proper Recordkeeping: Each series must maintain separate records, accounts, and bank accounts to preserve liability protection.
  • Contractual Clarity: Contracts should clearly identify which series is entering the agreement to avoid disputes.
  • Cross-Collateral Risk: If records or assets are commingled, courts may disregard the series’ separate status, exposing all assets to claims.

While Illinois law recognizes this separation, courts in other states may not, creating potential interstate risk.

Series LLC Requirements

In Illinois, a Series LLC must:

  • Establish one or more series in its operating agreement.
  • Maintain separate LLC agreements and business records for each series.
  • Hold assets of each series in accounts that are separate from each other and from those of the umbrella LLC.
  • Provide for these separate accounts and records in the operating agreement.
  • Provide notice of limited liability in the Articles of Organization, indicating that liability is only upheld when:
    • Record-keeping requirements are met.
    • Separate accounting requirements are met.
    • Assets and liabilities are held separately.
    • These conditions are detailed in the Articles of Organization.
  • File Form LLC-37.40, the certificate of designation, for each separate series.

If these conditions are not fulfilled, the court will consider the Series LLC void and all assets may be seized to satisfy the creditors of any sub-LLC.

Operating Agreement Best Practices

Although only the master Series LLC is required to file an operating agreement, it’s advisable to create supplemental agreements for each series. Best practices include:

  • Defining Series-Specific Rules: Outline management structure, member rights, and profit-sharing for each series.
  • Asset Identification: Clearly describe assets owned by each series in both agreements and financial records.
  • Liability Language: Reinforce statutory limitations of liability between series.
  • Dispute Resolution: Specify how disputes within or between series will be handled.

These measures help protect liability shields and strengthen enforceability if challenged.

Steps to Form an Illinois Series LLC

To establish a Series LLC in Illinois, businesses must follow these essential steps:

  1. Choose a Name – The LLC’s name must comply with Illinois naming rules and should be unique.
  2. File Articles of Organization – Submit Form LLC-37.40, including a declaration of the Series structure and limited liability.
  3. Draft an Operating Agreement – Although only the umbrella LLC is required to file one, it’s advisable to draft separate agreements for each series.
  4. Appoint a Registered Agent – Each series must designate a registered agent for service of process.
  5. Maintain Separate Financials – To ensure liability protection, each series must keep independent accounting records and financial statements.
  6. Comply with Taxation Requirements – The Illinois Department of Revenue may require separate tax filings for each series, depending on its structure.
  7. File an Annual Report – Only one report is necessary for the entire Series LLC, but it must list all active series.

Estimated Costs and Timelines

Forming an Illinois Series LLC involves the following approximate costs:

  • Filing Fee: $400 for the Articles of Organization.
  • Series Designation Fee: $50 per additional series.
  • Registered Agent Fees: Vary, typically $100–$300 annually.
  • Annual Report Fee: $75 for the entire Series LLC (covers all series).

Processing times are generally 3–5 business days for standard filing and as little as 24 hours for expedited service (additional fee applies).

Benefits of Series LLC

A Series LLC has a lower start-up cost than does establishing multiple LLCs. Instead of an annual report for each LLC, you only need to file one for the series. This will also save you money on attorney fees. A Series LLC is also less complex to administer and has fewer requirements than does a corporation with subsidiaries. In some states, rent paid from one cell to another within the same LLC is free of sales tax. A Series LLC is subject to only one registration fee and one annual fee. In many cases, the entire Series LLC is treated as a single entity for taxation.

Administrative and Tax Efficiency

An Illinois Series LLC can reduce administrative burdens compared to multiple LLCs:

  • Single Filing: One annual report for all series.
  • Centralized Compliance: Master LLC oversees compliance obligations, reducing duplicated work.
  • Potential Tax Advantages: Depending on IRS classification, series may be disregarded entities under the master LLC for pass-through taxation, reducing the number of tax filings.

This efficiency can lead to significant long-term savings for multi-entity operations.

Taxation of an Illinois Series LLC

The IRS has not fully clarified how Series LLCs are treated for federal taxation, leaving tax treatment up to state laws and case-by-case IRS rulings. Potential tax structures include:

  • Pass-Through Taxation – Each series may be treated as a disregarded entity or a separate entity for tax purposes.
  • Separate Tax Filings – Some states may require individual tax filings for each series, while others treat the entire LLC as one entity.
  • Sales & Property Taxes – Transactions between series may be subject to sales tax unless state exemptions apply.

Business owners should consult a tax professional or legal advisor to determine the most efficient tax treatment based on their specific business structure.

Drawbacks of Series LLC

Each series within the LLC must have its own registered agent, which means you'll pay additional fees. Administering separate bank accounts for each series can become an administrative issue.

Potential Risks and Legal Uncertainty

Although the Illinois Series LLC provides liability protection, legal uncertainty remains in several areas:

  • Interstate Recognition – Other states may not honor the liability shield between series, exposing businesses to legal risks.
  • Bankruptcy Issues – It is unclear whether the bankruptcy of one series will affect the entire LLC.
  • Corporate Veil Risks – Courts may pierce the corporate veil if financial records between series are not properly maintained.
  • Financial Institutions’ Hesitation – Some banks and lenders are unfamiliar with Series LLCs and may require additional documentation.

Due to these risks, seeking legal counsel before forming a Series LLC is essential, especially for businesses operating in multiple jurisdictions.

Interstate and Banking Challenges

Because not all states recognize Series LLCs, doing business outside Illinois can present hurdles:

  • Registration Issues: Other states may require separate registration for each series or refuse recognition entirely.
  • Lender Familiarity: Banks may be cautious or require extensive documentation before opening accounts for individual series.
  • Title and Insurance Complications: For real estate, some title companies may be unfamiliar with Series LLCs, causing delays or additional legal work.

Business owners planning to operate in multiple states should consult an attorney to assess the risks and develop mitigation strategies.

Frequently Asked Questions

  1. Can a Series LLC be converted to a regular LLC?
    Yes, but it requires filing amendments and possibly restructuring assets into a single entity, which may have tax implications.
  2. Do I need a separate EIN for each series?
    Yes, if a series is treated as a separate tax entity by the IRS. Otherwise, it may share the master LLC’s EIN.
  3. Can I add new series after formation?
    Yes, by filing a Certificate of Designation for each new series and updating the operating agreement.
  4. Are there restrictions on what each series can own?
    No, but assets must be clearly identified and recorded under the correct series to maintain liability separation.
  5. Does the Illinois Series LLC work well for short-term projects?
    It can, but the administrative effort may outweigh benefits for short-term ventures with minimal liability risk.

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