Series LLC Nevada: Everything You Need to Know
A series LLC Nevada is a Limited Liability Company that has divisions that may have a separate corporate structure from its parent. 3 min read
A series LLC Nevada is a Limited Liability Company that has divisions that may have a separate corporate structure from its parent. It usually features a parent LLC with one or more individual businesses organized as their own LLC under the parent.
Defining a Series LLC
The idea of a series LLC is a useful one because it allows for the formation of one legal entity that is made up of separate asset portfolios with varying ownership and management structures. Assets in each series, also known as divisions, are shielded from the liabilities from other divisions and the main LLC. This LLC structure is different from the standard LLC, and it's not available in all states. The only states that allow series LLCs are:
California is another state that accepts series LLCs, but only if they've been formed in another state that has allowed for their creation in the first place. This type of business structure is rarely used by business operators due to the lack of clear guidance from legislative, judicial, and regulatory bodies. However, the IRS has proposed regulations that indicate that the IRS feels that the series LLC is a legitimate structure and taxpayers are assumed to act reasonably in relying upon state laws regarding them.
Nevada Series LLC Requirements
In the event an LLC is to have one or more series and more than one liability shield, then the Articles of Organization for the LLC has to contain:
- Statement that the LLC is to have multiple series
- Statement setting forth the rights, powers, and duties of the series
- An indication that rights are to be set forth in the Operating Agreement
The Articles or Operating Agreement can pave the way to create one or more series, and grant the authority to create series to one or more managers or members or other person. A series LLC can have rights that are senior to other series, separate powers, rights, and duties with respect to property, obligations, profits, and losses. It can also have a separate business objective and investment direction.
It needs to be noted that a series is not considered to be a separate business entity under Nevada law.
Benefits of Series LLC
The idea of the series LLC concept works best for contexts like trust and estate planning, complex business structures, and real estate development and management. They are also used as an alternative to a holding company structure. Here's an example of how a series LLC can be useful:
A privately held company owns a manufacturing business with its own fleet of trucks and retail outlets to sell its goods. An accident with one of the transport vehicles, on the manufacturing floor, or in the retail outlet can expose the entire company to liability. Forming a series LLC for each section of the business restricts liability to that section only. The transport aspect is held in one division, the manufacturing facilities in another, and the retail outlets in a third. If someone has an accident with any of these divisions, they can sue that division only and not the entire company.
The doctrine of limited internal liability holds that the liabilities, debts, obligations, and expenses that relate to a specific series or division are enforceable against the assets of that division only. The rest of the series cannot be held liable.
Risks of Series LLC
The primary risk comes from the lack of formal tax treatment by the IRS of the series LLC. However, in September 2010, the IRS published rules that state that series LLCs will be presumptively treated as an entity under local law and thus an entity separate from the LLC and other series for the purposes of federal tax law.
Close attention needs to be paid when drafting the governing documents of the series LLC. Assets have to be segregated properly, and managers and members have to be properly associated. Failure to comply with statutory drafting requirements runs the risk of the assets of one or more series becoming exposed to liability.
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