Have you heard of a “series” LLC? It’s a special kind of LLC that is available only in a handful of states. Delaware was the first state to adopt it and now about 20 states that offer it and the list is growing.

While it was initially designed for other purposes and industries, the real estate community has jumped on it. So let’s explain what it is. First, it’s an LLC in structure like any other LLC. There are members, managers, an operating agreement and certificate of organization, which is filed with the state. It can be taxed as a pass-through (single member), partnership (multi-member), and it can even make an “S” election with the IRS to be taxed like an S-Corp (although there’s rarely a need for this and it can cause tax complications).

But then, this special LLC is permitted to create what are called “series” within its structure. To understand this, we need to talk liability protection. If you own a rental property in an LLC and there’s a slip and fall, the plaintiff will sue the owner of the house, that is the LLC. Being the defendant on lawsuit means that if there’s a judgement against it, the court can go after ANY asset the LLC has. This would include other rentals. Thus, most investors prefer to separate out their rentals so that the bunch are not as risk if there is a problem with one.

So, investors would set up a holding company (that did not own any rentals) and then a sub-LLC of that for each rental property. So, each rental was in a different company altogether and there was a separation of liability. But, that’s a LOT of LLCs to create and manage! Your attorney will be very fat and happy with you.

The Series LLC mimics that holding company-sub company structure, but in ONE single LLC! So, you only set up one company with one operating agreement, one state filing, etc. But because the filing and operating agreement allow it, the LLC can create each “series” on its own. There is no need to file anything or even go back to your attorney. Each series acts like a sub LLC without all the hassle and paperwork. In fact, it’s usually just a simple one or two page form that is filled out by the members of the LLC and signed. That’s it! They just created a series. Then, you just do that each time you buy a new rental.

By using the series LLC, you get that great separation of liability by having each rental in a separate, dedicated “series” that has its own unique name. Title is held in the series. Your lease agreement will name the series as the landlord. You can even use one bank account (in the name of the main LLC) for all the series within it. The bank account will function as an escrow account (since each series is technically a different entity).

This is the big point! Your bookkeeping must be kept completely separate! Remember, each series is a separate entity and should be thought of as such. You do NOT want to rob Peter to pay Paul (that’s commingling funds)! I always recommend a good bookkeeper because they will know exactly how to do your books. And they will save you a lot of time and headaches, especially if you have many properties.

There is no limit to the number of series one Series LLC can create. But, at some point, it may just be too unfunctional to put dozens in one. But that’s up to you.

If you need more information, I have a free guidebook called “Getting Started: Real Estate LLCs” that you can find at the bottom of my home page on my website. It is FAQ format and you’ll learn a lot.

For more information, please see my website link below!

Jeffrey S. Breglio, Esq.
Breglio Law Office and REI Mastery U
www.reimasteryu.com
jeff@bregliolaw.com
(801) 560-2180