Key Takeaways

  • A Series LLC in Alabama allows multiple “sub-LLCs” under one parent LLC, each with separate liability and assets.
  • A Professional LLC (PLLC) is designed for licensed professionals like doctors, lawyers, or accountants.
  • Series LLC vs Professional LLC in Alabama: Series LLCs are best for real estate investors or multi-business owners, while PLLCs are legally required for regulated professions.
  • Alabama permits Series LLCs with additional filing steps for each protected series, making them cost-effective but administratively complex.
  • While Series LLCs provide liability shields between series, PLLCs ensure compliance with state licensing boards.

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.

Series LLC vs Professional LLC in Alabama

When evaluating whether a Series LLC is right for your business, it is important to compare it with another common structure in Alabama: the Professional LLC (PLLC).

  • Series LLC: This option benefits entrepreneurs managing multiple ventures under one umbrella. For example, real estate investors can assign each property to its own series, reducing liability risks between assets. Each series operates with separate bank accounts, records, and liability protections.
  • Professional LLC: Alabama requires licensed professionals (such as attorneys, doctors, engineers, and accountants) to form a PLLC instead of a standard or Series LLC. The PLLC ensures compliance with professional licensing regulations and typically limits ownership to individuals licensed in that profession.

Key Differences:

  • Purpose: Series LLCs maximize liability separation for diverse ventures, while PLLCs ensure regulated professionals practice within state law.
  • Eligibility: Anyone can form a Series LLC, but only licensed professionals may form a PLLC.
  • Liability: Both offer personal liability protection, but PLLCs often impose restrictions tied to malpractice and professional standards.
  • Cost & Complexity: A Series LLC may require multiple filings and record-keeping, while a PLLC usually follows a simpler single-entity structure.

For Alabama business owners, the decision often comes down to whether the enterprise involves multiple lines of business (favoring a Series LLC) or professional services that legally require a PLLC.

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.

Filing Requirements for Series LLCs in Alabama

Forming a Series LLC in Alabama involves several specific filing requirements:

  1. Certificate of Formation: File with the Alabama Secretary of State, designating the LLC as a “Series LLC.”
  2. Operating Agreement: Clearly outline how each protected series will be created, managed, and dissolved.
  3. Filing for Each Series: Although the parent LLC is formed once, additional certificates or filings are required for each individual series you create.
  4. Annual Business Privilege Tax: Like other Alabama LLCs, Series LLCs must pay the Business Privilege Tax each year.
  5. Registered Agent Requirement: A registered agent must be maintained for legal correspondence across the parent and all series.

These extra steps make Series LLCs more complex than traditional LLCs but still more cost-effective than forming multiple separate LLCs.

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.

Advantages and Risks of Series LLCs in Alabama

Advantages:

  • Cost Efficiency: Creating multiple series under one entity avoids paying separate filing fees for each LLC.
  • Flexibility: Each series can pursue different business activities or hold separate assets.
  • Liability Shielding: Creditors of one series cannot typically pursue assets in another, offering strong asset protection.

Risks:

  • Unsettled Legal Landscape: Because not all states recognize Series LLCs, doing business outside Alabama may expose series to legal challenges.
  • Administrative Burden: Separate bank accounts and accounting records must be maintained to preserve liability protection.
  • Tax Treatment Complexity: The IRS may treat each series as a separate taxable entity, creating additional reporting obligations.

Business owners should weigh these benefits against the additional recordkeeping and regulatory uncertainties.

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.

Frequently Asked Questions

  1. Can licensed professionals form a Series LLC in Alabama?
    No. Licensed professionals such as doctors or lawyers must form a Professional LLC (PLLC) instead of a Series LLC.
  2. Do I need a separate EIN for each series in a Series LLC?
    Yes, each series generally requires its own EIN, bank account, and accounting records to maintain liability protection.
  3. How much does it cost to form a Series LLC in Alabama?
    The base filing fee for the Certificate of Formation is around $200, plus additional fees for each series and the annual Business Privilege Tax.
  4. Is a Series LLC recognized outside of Alabama?
    Not always. Some states do not recognize Series LLC structures, which may complicate interstate business operations.
  5. Which is better in Alabama: a Series LLC or a Professional LLC?
    It depends on the business type. A Series LLC suits entrepreneurs managing multiple ventures, while a PLLC is mandatory for regulated professionals.

If you need more information about what is a series llc vs professional llc alabama, 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.