Establishing a formal business entity is a great way for entrepreneurs or investors to protect their assets and earnings. Depending on the type of business you establish, there are various requirements that must be fulfilled in order to maintain liability protection. The series LLC operating agreement is where these details are contained.
A corporation, for example, was once the favorite business entity choice for those who wanted to limit their liability. Today, however, the limited liability company (LLC) is becoming an increasingly popular entity choice. A LLC offers the same limited liabilities as a corporation, but with much less formality. For those looking to invest in multiple ventures, a series LLC has become even more enticing. For series LLCs, not only is the parent company protected, but also each of the “child” LLCs and their assets maintain separate protections.
When you have a series LLCs, you have the unique ability to protect your assets and investment returns from lawsuits. How? Series LLCs are commonly formed in an effort to “box” a single, or small chunk, of your investments.
If you have three series LLCs (A, B, and C), each with their own rental property investment, you have set up a protective barrier around each. In fact, let us imagine your series LLCs are as follows:
Accidents happen all too often and can leave owners with serious financial problems. If a renter’s elderly mother slips and falls on Property C, breaking a hip – you may be subject to a lawsuit. With a series LLC, however, the lawsuit can only take into account those properties and assets associated directly with Property C. Therefore, the assets under series LLC A and B are both exempt from the financial impacts of a lawsuit against series LLC C. This is one of the inherent protections you are afforded under a LLC.
For a series LLC, the operating agreement is a vital document. While some business types do require meetings and their frequency, a series LLC only needs to hold them should their operating agreement dictate it. Violating regulations or your operating agreement can have serious consequences and cost you your liability protections. If your series LLC operating agreement does not require meetings, which many do not, you have less paperwork and less chance of violating laws.
Most series LLC agreements do not require meetings. While meetings are a good idea and can ensure all members and employees are on the same page, they are not a legal requirement and, therefore, only needed when you deem them so. Ultimately, with a series LLC, you have the freedom to run your company as you see fit while still maintaining asset protections. If you would like to know, contact Royal Legal Solutions today. Our experts are standing by to help you find the best way to avoid the devastating impacts of a lawsuit and maximize your earnings.
Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.
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