What Is a Series LLC in Alabama: Everything You Need to Know
What is a series LLC in Alabama is a group of individual limited liability companies owned by an entity that is also a limited liability company. 3 min read
2. Common Uses of a Series LLC
3. States With Local Series LLC Laws
4. The Uniform Protected Series Act
What is a series LLC in Alabama is a group of individual limited liability companies owned by an entity that is also a limited liability company. A series LLC's operating agreement and articles of formation provide control mechanisms that separate the assets, liabilities, ownership interests, and profits and losses of each LLC within the series.
Is a Series LLC Right for Your Business?
The series LLC is not as common as a regular LLC, but it can help simplify the administration of multiple businesses. While a series LLC has some disadvantages, it is an effective strategy for:
- Creating multiple limited liability companies in one entity.
- Enjoying the benefits of an LLC.
- Making management and administration of multiple businesses easier and more cost-effective.
Additionally, you don't need to repeat the filing processes for a new series because the series LLC exists as a single entity.
The series LLC is like an egg carton with 12 eggs. Each egg is an individual protected series within the series LLC that can be owned by series LLC members. Individual protected series are distinct, with different business names, bank accounts, corporate books, and records. They can enter into contracts independently and file lawsuits. A series LLC's main advantage is to allow a business owner to run several businesses with different owners within a single legal entity while protecting each series from the liability of one another and the series LLC in general.
Common Uses of a Series LLC
A series LLC is commonly used for the following reasons:
- To provide regulatory convenience. A series LLC allows an entity to operate multiple businesses with a single permit or file a single application for all the individual LLCs in it.
- To make establishing related businesses easier.
- As a business structure for companies that want to start multiple lines of business simultaneously while protecting each business from liability of other enterprises.
- For venture capital funds and mutual funds that want to invest separately in multiple assets with different risk profiles.
- For investors in the property market to segregate the liabilities of different properties within one legal entity.
States With Local Series LLC Laws
Local laws on series LLC are available in 13 states, Puerto Rico, and the District of Columbia. Thousands of series LLC entities, however, are doing business in the United States. Due to the lack of local laws to guide the use of series LLC structure in several states, many attorneys and business owners shy away from using it.
Additionally, regulators and courts have delivered decisions about series LLCs that make their legal status even more unclear due to a lack of legislation. These include legal issues such as the following:
- If a series LLC is involved in a case in a state with no local series LLC laws, will the courts respect the internal liability protection of individual series in the single entity?
- What is the individual protected series' tax status? States such as Delaware and others collect a single state franchise tax for the series LLC but not for individual LLCs.
- In certain situations, the IRS will tax each series as a distinct entity.
- The difficulty in carrying out basic corporate functions because of a lack of official guidelines regarding series LLCs' formal conduct.
While this structure offers significant benefits for management and expenses, each series still requires its bank accounts, books and records, and more to maintain its liability protection. This hinders the arrangement's efficiency greatly.
The Uniform Protected Series Act
In July 2017, the National Conference of Commissioners on Uniform State Laws approved the Uniform Protected Series Act to provide states with clear guidance about series LLCs. If more states adopt the act, many attorneys and business owners will be motivated to try the series LLC structure, reducing the risks and uncertainties surrounding it. If states can ratify the act without alterations, it will provide more clarity about the series LLC's liabilities and operations and help attorneys and clients feel confident about using the business structure.
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