Key Takeaways

  • An Illinois Series LLC offers liability protection for each series within the LLC while allowing a single filing fee and annual report.
  • Each series within a Series LLC can own separate assets, have different members, and operate independently.
  • Illinois law requires distinct accounting records for each series and notice of limited liability in the Articles of Organization.
  • Advantages include reduced filing fees and simplified administration, but drawbacks include additional complexity in compliance and uncertain treatment in other states.
  • Tax treatment varies—federal and state taxation for Series LLCs is still evolving, and proper structuring is necessary for compliance.
  • Common uses include real estate investments, franchise models, and businesses with multiple independent operations.

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.

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.

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.

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.

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.

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.

Frequently Asked Questions

1. Can each series within an Illinois Series LLC have different owners? Yes, each series can have its own members and managers, separate from the umbrella LLC and other series.

2. Does a Series LLC in Illinois require separate tax filings for each series? It depends on the IRS classification. Some series may be treated as independent tax entities, requiring separate filings.

3. How much does it cost to form a Series LLC in Illinois? The state filing fee for a Series LLC is $400, and each series designation costs $50.

4. Can a Series LLC protect real estate investments? Yes, real estate investors commonly use Series LLCs to separate liabilities for different properties.

5. Is a Series LLC recognized in all states? No, many states do not recognize the liability protections of a Series LLC, which may lead to legal complexities.

If you need help with establishing a Series LLC in Illinois, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.