Series Limited Liability Company: General Requirements
The Series Limited Liability Company (“Series LLC”) is an innovative new way to own real property. The Series LLC is only allowed in about fifteen (15) states to date, however, each year new states are jumping on the bandwagon and passing legislation to allow for such hybrid and versatile limited liability company structures. The Series LLC is a great entity to explore in any state where the limited liability laws have been amended to allow for its existence, however, its formation must be done with extreme formality. Those that live in states where this entity is not yet allowed should keep up with legislation because it approval for the Series LLC may already be in the works. Staying ahead of the law is always prudent.
The requirements for the formation of the Series Limited Liability Company vary from state to state, however, as a generality, the Series LLC is typically formed using the current LLC procedures (with a twist). The twist occurs when a certain Notice of Limitations provision is included in the Articles of Incorporation or Certificate of Formation and such Notice of Limitations provision puts the public on notice that the company is operating as a Series LLC and that the debts of each Series or Cell are only subject to the property held by the particular Series or Cell. Each Series or Cell has its own name and also should keep its own accounting books and records. Since the state laws surrounding the Series LLC are newer (along with its existence in only a few states), the internal revenue service (IRS) doesn’t have significant authority as to how to operate the entity with regard to its taxation, however, it is usually prudent if each Series or Cell has its own separate tax federal tax identification number. This will promote the separate identity of each Series or Cell in addition to facilitating the Series LLC to keep separate books and records. Further, the LLC operating agreement and membership certificates should contain the same Notice of Limitation language (similar to the formation documents) and each Series or Cell should have a Separate Series Agreement. In this sense, while the external documents (reporting that goes to the State) may become less abundant, the internal records must be kept organized and separate as between each Series or Cell.
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