The Basics of Creating a Series LLC

When it comes to creating your own business or even forming one that already exists and putting it under your name, there are a few things you need to know.

You may want to form your business under an LLC or a Series LLC. An LLC stands for Limited Liability Corporation and it is slightly different from a Series LLC. The only difference between the two LLCs is that a Series LLC is protection for multiple LLCs. (Note: A Series LLC is sometimes called an SLLC.)

When forming a series LLC, the first thing you need to do in most states is to register with the Secretary of the State you are in. This filing will cost you a fee. However, there is much more to it than that. Read on!

Things You Need to Get Your Series LLC Started

Although not all states accept Series LLCs, those that do accept them require a few things before you get started:

You need a name for your LLC
You need the address of the LLC you are creating
You need the resident name and address of the agent who is creating the Series LLC
You need to designate the member or manager who is managing the LLC
You need the name or names of the manager or managers of the Series LLC
You need to know how long the LLC will be in operation. If you don't know the exact date of the Series LLC ending, or if it will go on as long as possible, state that it will be ongoing or in most states, you can use the term 'perpetual'
You need to know what the business is that is going to operate under the LLC. In many states, a general business can say something along the lines of "all legal business activities"
You will need to file separate forms for each cell associated with the Series LLC and each manager who you are using. This is a requirement in Illinois.

One other thing you must do when forming a Series LLC is to make it clear that you are creating a Series LLC. However, it does differ from each state when registering and whether or not you have to notify them that you are filing for a Series LLC. In certain states like Utah, Texas, Delaware, Tennessee, and Oklahoma, it is a requirement that you notify officials that you are creating a Series LLC with seperate rights on each one. However, how much detail you do have to provide for it will depend on the state you are filing for one in.

Once all of your documents are filed on your LLC, you are officially in business.

Funding Your Series LLC

When you are ready to start your own business and place it under a Series LLC, you do need to put money into it to make it a profitable one. When funding your Series LLC, you will be better off putting the money into a bank account for your business. There is more than one way to fund a Series LLC. Here is more information on how funding your Series LLC works.

Open a Bank Account

When funding your Series LLC, the first and most important thing to do is to open a bank account for it. Your very first deposit will be to pay for your equipment you need for your business. Such equipment includes office equipment and supplies, office furniture, and whatever else you will need for your business. There are two ways you can do this. Keep reading to learn how to fund your Series LLC with your bank account.

Invest in Your Company

The first funding option for your business is to invest in it. However, if it is a Series LLC, you will not be the only person investing in the company. Although there will be more than one owner if more than one person invests in it, make sure to bring them into the company at the same time. You don't want to bring in other investors and owners at different times. Also, don't forget that investing in a business has to go under both federal and state laws. Another thing to remember is to not bring in other business owners without proper legal advice first.

Loan Yourself Money for Your Series LLC

The other way to fund your Series LLC is to loan yourself money for your business. You should do this for startup and operating expenses. You can always put the money back in after you start making a profit. Or, you can make payments back into the business to pay it back. Because the Series LLC doesn't think of this as income, you will not have to report this to the IRS for tax purposes. However, if this is the option you choose to fund your Series LLC, you will have to keep records about it. The best way to record the loan and the payment back is to write out a Promissory Note as well as a resolution statement from the other members of the LLC saying that they approve of your loan.

Another thing about using the second option to fund it is that you will have to add interest to your own loan. The reason for this is because if you don't, the IRS can do it themselves. This could mean that it will end up being taxable income for the lender, but without an offsetting expense on it.

Using a Series LLC for Real Estate Investment Protection

One of the best asset protection companies for real estate investors is the Series LLC. It's been around since 1996, originally started in Delaware but it spread through a number of states now. This allows you to form a Series LLC in their state and use the company in any state.

First, learn about the Series LLC vs LLC you probably know about. Then you'll start to understand that the Series LLC (unlike its more traditional counterpart) operates much like a parent-child type of relationship. You have one series LLC, this is the company named something like "Worldwide Investments LLC," for example. It will actually be filed in the state of Texas and that will have its certification of formation and all of those formal documents. Documents which certify that is a legitimate LLC inside of that state.

Series LLC Formation

Series LLC has special provisions inside of a formation as well as operating agreement which gives it the ability to have children, as many children as it would like in fact. Each child is known as its series. So we'll have series A. Later you can form series B, which is separate legally from the first. You can have unlimited series within a Series LLC. That's advantageous, because each series is treated individually for liability purposes, just as if it were its own limited liability company.

This means that if you have a property, a single property that's held by series A, which is what I'd recommend. We should be compartmentalizing our assets as investors. Because what we want is if there's a lawsuit regarding series A, it doesn't affect series B, C, D,etc. for every asset that we have. A incident works much like a single purpose LLC.

Series LLC Taxes

Series LLCs is also advantageous because they allow one EIN number that's filed underneath this company name. That allows us to streamline our tax preparation so that we're not having to do individual company filing.

Legal Considerations

Now, there's some apprehension in the industry regarding whether a series LLC would be recognized in a state that doesn't formally have a law both in Washington and created there. I personally believe that there's good reasons to think that due to the growing trends nationally these companies will be recognized if ever challenged. There's not a lot of case law on that fact though, but there's a lot of good reasons and precedent that we typically do recognize a company formed in Texas that would be operating, say, in Idaho. Idaho will recognize a Texas company.

These are LLCs. Just like any other LLC. Just with one small caveat, that it can create tiers. But, for the more conservative investor that has any apprehensions about that, I would recommend using a traditional single purpose, limited liability company for each property.

Costs Of Operating An LLC Vs. a Series LLC for Real Estate

You have to pay for the series LLC tax preparation for each one of those companies at the end of the year, you're gonna have to pay for the formation of those companies, operations, management, and registered agent of those companies which can be hundreds of dollars per year. And you're gonna have to pay what the overall complications and operations of those companies.

So you have to weigh your odds and how you feel about the Series LLC versus the single purpose limited liability company. My opinion is that the Series LLC is the way to go.

My name is Scott Royal Smith, with Royal legal solutions, I'm an asset protection attorney focused in real estate, and I'd like to help you. Set up a consultation to see how the Series LLC can streamline your asset protection protection today!

LLCs Can Function as Pass-Through Entities

The LLC, or Series LLC, has the easiest tax returns for a single member. It's known as a pass through-entity. This means that all of the income from your company's able to be recorded on your personal income tax return. You don't have to pay thousands of dollars to CPA take people to file that business tax return that you would have to do otherwise.

This is also true if it's you and your spouse filing jointly for your income taxes. Some states they require multiple members, so this can be a huge leg up when it comes time for ease of use of tax preparation.

Let's take for example that you both have you and a partner inside of the LLC. You're going to have to file what's known as a partnership return. A partnership return is a separate return for the business itself. You're going to need somebody to help you repair that return, to which I suggest you hire a good CPA who is also a real estate investor to be able to help you prepare the return.

Also note that an LLC is able to be taxed as a corporation Some instances it can make sense in terms for your operating company to have that LLC taxed as an s corporation. So keep that in mind.

My name is Scott Smith. I'm an asset protection attorney, a real estate investor, and I want to help you. Click here to schedule a consultation today!

What is the Difference Between a "Member" and a "Manager" of a Series LLC?

A limited liability company (LLC) is a great way to protect personal property while simultaneously saving on taxes. A series LLC is a multi-tier business structure, which creates a parent-child hierarchy. Typically, the parent series LLC is filed with the state. Once that has been done and the Internal Revenue Service (IRS) has provided a tax-identification number, individual “child” series LLC companies can created without additional filings or startup fees.

The Benefits of a Series LLC

A series LLC allows a business owner to protect their assets and investments separately. What does this mean? Each LLC’s assets are protected from lawsuits that may be brought against the others. Imagine you invest in four separate rental properties, each under a distinct series LLC. If a personal injury occurs on Property A and a lawsuit if unfortunately brought against you, the other three properties and any earnings and returns that correspond to them in your other series LLCs cannot be subjected to losses you may suffer. Only the series LLC attached to Property A can be subjected to the punitive damages you may be liable for.

“Member” vs “Manager”

There are two ways to structure the management of your series LLC. For a member-managed series LLC, the owner(s) run the business. For a manager-managed LLC, a designated member or non-member is responsible for the running of the business. Let us take a closer look at the differences below.

Member: Series LLCs can have one or more members. In its most simple form, the word member, when used in relation to a series LLC, means owner. Most often, series LLCs are formed by small businesses that do not need extensive management structures. Because of this, member-managed LLCs are the most common type of management structure used.
Manager: Manager-based structures are used typically when there are members who only want to act as passive investors in the business. It is also used when a business is too large or diverse for members to co-manage. Manager-managed structures are also often used when members themselves lack managerial skills and want expert outside help to ensure their business remains profitable.

Series LLCs at Royal Legal Solutions

At Royal Legal Solutions, we do our best to ensure you have the greatest possibility for success. We understand how important it is to protect your investments and limit your liabilities. If you have questions about how a series LLCs works and if they are right for you, the experts at Royal Legal Solutions can help.

Does a Series LLC Have to Hold Meetings?

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.

Series LLC Protection

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.

The Series LLC “Box”

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:

Series LLC A: Set up to run Rental Property A and has a total value equating to $100M.
Series LLC B: Owns and operates Rental Property B with a total value of $500,000.
Series LLC C: Invests in and managed Rental Property C, equaling a total value of $250,000.

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.

Operating Agreements

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.

Fewer Requirements, More Freedoms

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.

Series LLCs and S Corporations: Which Is Best For Your Business?

Limiting your liability is an important factor when you start a business. Because of this, many entrepreneurs start with a limited liability company (LLC) or an S corporation. But which one is right for you?

Similarities Between A Series LLC and an S Corporation

There are many similarities between an LLC and an S Corp.

Pass-Through. Both the LLC and S corporation are typically used because they are pass-through tax entities. For pass-through entities, income taxes are not typically filed at a business level. Any profits or losses felt by the company, however, are “passed-through” and filed with their owners’ personal returns. In other words, if taxes are owed, they are paid by the individual, not the business. (Note, however, that S corporations are required to file business tax returns. LLCs only need to do so if they are owned by multiple individuals.)
Protection. Both types of businesses protect their owners. Through their limited liability protection, both types render their owners not personally responsible for any debts or liabilities related to the businesses.
Separate Entities. LLCs and S corporations establish separate entities for their owners. This is what creates the legal barrier that prevents owners from being personally responsible for debts and liabilities. Once the business is filed with the state, the inherent laws and regulations become viable. For LLCs, this same separation of entities applies to series LLC versions as well. Series LLCs enable a company to divide its assets between different, sub-companies. Legally, under a series LLC, each sub-company’s assets are protected as if they were the only entity.
State Requirements. Both a LLC and an S corporation are subject to state requirements. This can include filing requirements, related fees, and other state-mandated regulations.

Differences Between A Series LLC and an S Corporation

There are some significant differences between LLCs and S corporations.

Formalities. S corporations have several internal formalities that must be fulfilled in order to maintain their limited liability. Bylaws, stock issuance, meetings and meeting minutes are all required on the part of an S corporation. This is not so for a LLC or any of its series. (The Internal Revenue Service (IRS), however, does recommend that LLCs have an operating agreement, member shares, and annual meetings. They also recommend LLCs document all major decisions.)
Management. An S corporation is required to have a board of directors and officers. For an LLC, however, owners can choose to manage their business or they can elect to hire an outside person to act as manager.
Ownership. The IRS has several restrictions for S corporation ownership. For example, an S corporation cannot have more than 100 owners or shareholders. In addition to this, all shareholders or owners must be US citizens or residents. None of this is true for LLCs. In fact, not only can LLCs have an unlimited number of owners, they are also allowed to have unlimited subsidiaries or series.

Do I Need an Attorney to Form a Series LLC?

Entering the business world through the establishing your own company can be a scary, but exciting time. There are papers to file, fees to pay, and regulations to abide by. For small business owners, a limited liability company (LLC) is often an ideal option. A Series LLC can be even more appealing. These LLCs allow owners to file separate assets under different business entities, protecting each from any debts or lawsuits that may be brought against the others. In other words, assets assigned to each sub-LLC are shielded from each other’s liabilities. Nevertheless, what are the legal requirements of a series LLC? Keep reading to find out.

What States Allow The Use Of Series LLCs

State laws permit, limit, or restrict the formation of series LLCs. Some states, including Delaware, Illinois, Nevada, Texas, and Utah, allow owners to establish series LLCs. Other states, such as California, to not allow series LLCs to be formed within their borders but do permit those formed legally in other states to register and conduct business. Still, a few do not recognize series LLCs at all.

Legal and Professional Help On Your LLC

If permitted by the laws of their state, anyone can establish an LLC. A lawyer is not needed to do this. However, it is highly advisable that anyone considering establishing a business consult with a lawyer and a tax professional. A series LLC comes with a lot of freedoms other business models do not. However, as with most things in life, laws and regulations still apply.

Articles of Formation. For example, filing a series LLC is quite similar to filing a more traditional LLC. Both require owner(s) to file articles of formation with specific government entities.
Operating Agreement. With these articles of formation, an operating agreement is either required or highly recommended. (Check your state laws or consult with a lawyer to find out what your state explicitly requires!) For a series LLC, your operating agreement most likely will need to expressly authorize the primary LLC to form subsidiary-like LLCs.
Fees. Fees to set up your LLC or series LLC will vary by state. Some may require a fee for each series, some may not. Your local laws dictate the requirements for the state, or even county, you file your series LLC in.

With all the paperwork, fees and state requirements – it is likely in your best interest to consult with a lawyer in the very least.

Royal Legal Has Worked With Many Series LLC's

While a lawyer is not a requirement when forming a series LLC, it is highly advisable. A consultation can help ensure you start your business on the right foot. Maintaining a working relationship with a lawyer can help ensure you remain in compliance with all laws that may affect your business. Even if you have a series LLC and have owned it for some time, talking with a professional can keep you up to date on any state law changes that may have occurred since forming your company.

What are the Main Differences Between a Series LLC and a Traditional LLC?

A limited liability company (LLC) is a popular way for entrepreneurs to file a business entity. A LLC offers owners a level of flexibility not provided through the formation of other types of businesses. As its name implies, an LLC also affords owners limited liability that can help protect them from incurred debt or lawsuits that may be filed against the business. A series LLC is similar to the more traditional LLC. Similar to a corporation umbrella, a series LLC has a “parent” LLC with one or more “child” LLCs that are filed beneath it. However, a series LLC has its differences as well. How do they stack up? Keep reading!

The Similarities

A traditional LLC and a series LLC follow the same formation regulations. Articles of formation, and any associated fees, will be to be filed with the appropriate government body. Most states also require an operating agreement. Both versions of the LLC protect owners from liabilities. Additionally, they do not limit the number of stakeholders or owners and permit non-US citizens to take part in the company.

The Differences

Series LLCs, however, are not recognized by every state. Those that do recognize and permit the formation of a series LLC may have varying laws that dictate how to do so.
other states, like California, do not permit series LLCs to be formed but do recognize those legally established in other states. Others yet do not recognize series LLCs at all. Series LLCs allow a company to separate and “box” specific assets into various sub-LLCs to help protect them from each other. If a lawsuit is brought against one of the series LLCs, for example, the assets and earnings of the other LLCs are shielded from any legal consequences. A series LLC can also help to reduce startup and ongoing administrative costs. For example, if you file for a traditional LLC in Kansas, the fee is $160. If you file for a series LLC, the master will cost $250 and each series will be an additional $100. If you want to protect three separate assets from debt and litigation, under a series LLC, this will cost you $450. To get the same protection from a traditional LLC, you would need to file three separate LLC entities, for a total of $480.

Professional Guidance

Royal Legal Solutions can provide professional guidance to help you make the most of your entrepreneurial dreams. Our staff understands the nuances of state laws throughout the United States and Canada. As experts, our experience can help you avoid accidentally violating the various regulations your company may encounter and maintain your limited liability. If you would like to schedule a consultation, contact us today.

The Biggest Benefits of Series LLCs

There are a host of benefits to using a Series LLC. It truly is the entity that offers something for everyone. Whether you're looking for tax perks, operational or administrative benefits, easy ways to grow your business, or asset protection, the Series LLC has you covered. Read on to learn more about these and some other benefits you can reap from using a Series LLC.

Series LLCs Let You Grow Your Business Forever

Take a look at the picture below to understand the Series LLC structure. You'll notice there's an operating company on top, and multiple companies beneath. We use the metaphor of father to make the point that this structure lets you have as many kids, or Series, as you like.

Although our example has three Series, you can literally grow your business until the end of time. Each Series is its own LLC, and you can create new ones easily as you acquire more investments or other assets. As a bonus, you save money by using a Series LLC rather than the same amount of Traditional LLCs. You pay the costs of establishing the LLC once, and only once.

Series LLCs Protect Your Valuable Assets

The Series LLC's structure isolates your assets, allowing you to have full liability protection for each one. Each asset is secured in its own Series, which functions as its own LLC.

In practice, using a Series LLC makes you very difficult, or at least highly impractical, to sue. Even if someone has a good reason and the resources to sue you, their attorney may not want to. Why? The reasons are pretty simple:

Anonymity protects you as an individual, and keeps your name off of the assets. Without a name, it's impossible to sue you personally. Suing the assets is possible, but more difficult.
Isolated assets mean only one asset is ever vulnerable at a time--the rest of the structure is immune to litigation.
Asset protection strategies in general make that sole asset someone wants to sue you over not that worthwhile. Attorneys don't like to take cases if there's not a prize (in the form of cold, hard cash or a valuable asset) worth fighting for.

This is just the quick and dirty version. See our previous article on how the Series LLC prevents lawsuits to learn more.

Series LLCs Offer Great Tax Benefits

That's right, even Uncle Sam is kind to the Series LLC. We could write a whole article on tax benefits alone, but here are our top two.

Save on Business Taxes

The Series LLC is represented only in its "home state." This means, if your Series LLC is formed in a state with no sales tax, you get to skate on sales tax. For real estate investors, this means rental payments between Series aren't subject to sales tax.

The beautiful part is, you don't even have to reside in the state you form the Series LLC in. If you're itching to save on taxes, consider the Texas Series LLC. This entity will also help you save money via pass-through taxation.

Simplify Your Tax Returns

Even though you can have as many Series and assets as you want, you'll still only file one tax return for the whole shebang. The operating company, or parent company, is the only one that you're required to put on the form. Of course, you're still paying taxes on the "children" (Series), but it's all reported as a single entity.

All these benefits and more can be yours. Contact us today to schedule your Series LLC consultation.

Can My Series LLC Have an Unlimited Lifespan?

Regular readers know our firm absolutely loves the Series LLC. It's among the most versatile and powerful entities for real estate investors, or anyone with a growing business in need of asset protection. Today, we're addressing how the Series LLC holds up over time. So, can your Series LLC live on forever? Why would you want a company that could achieve such longevity? We'll answer these questions and more below.

Can The Series LLC Have an Unlimited Lifespan?

The short answer is yes, it absolutely can. Traditional LLCs can also have unlimited lifespans under some circumstances. What does this mean in practice?

Some types of companies have laws that require them to re-file with the state to continue existing beyond a certain point. Otherwise, these companies will be required to dissolve within a specified timeframe. By contrast, the Series LLC has an unlimited lifespan, also referred to as a perpetual lifespan, automatically. When you use this structure, you won't have to worry about re-filing, or other paperwork hassles. Read on to learn more about the specific benefits of this feature.

Why Should I Care About My Company's Lifespan?

There are several advantages to having a company with an unlimited lifespan. The most obvious of these is that you'll save money. Re-filing with the state isn't free. You have to pay fees when you re-file to prevent the dissolution of a company with a concrete lifespan. The Series LLC, however, is immortal. You pay once, when you establish it, and you're done. Some other perks of perpetual lifespans include the following:

Freedom to run your company and assemble your board/members as you see fit. Other types of companies will require annual board meetings or specify different aspects of management. You're free of these obligations when you use a Series LLC.
Ability to add members without interference from the state. Since company's with a measurable lifespan have board requirements, they don't enjoy this luxury.
Separation between you as an individual and the assets within your Series LLC. In theory, the company could outlive you. That said, if it does, you'll have to anticipate changing membership.
Tax savings, both because you're only filing with the state once, and also because the Series LLC receives pass-through tax treatment.

Of course, there are many more benefits to the Series LLC as a whole. You can read much, much more in our previous posts about advantages of using a Series LLC.

How Do I Form My Series LLC?

Forming a Series LLC still requires filing paperwork with the state. You'll also need an Operating Agreement for the parent company, banking and bookkeeping preparation, and enough Series for each of the assets you intend to protect. Funding the Series LLC is another issue to deal with. Getting this done correctly is important to make the most of your new entity.

That's why it's important to get help from a qualified attorney with specific experience in Series LLCs and their management. At Royal Legal Solutions, we offer a full-service Series LLC package that gets you in business as soon as possible. If you're ready to get started, schedule your Series LLC consultation today.

Some Drawbacks of Series LLCs

The Series LLC is a remarkably powerful tool, but it isn't a panacea. Few things in life are perfect, and the Series LLC is no exception. No entity, legal tool, or strategy is one-size-fits-all. Today, we're going to discuss some of the drawbacks of using a Series LLC. This post should help you determine if the Series LLC is right for you.

Series LLCs Aren't Cheap

Forming a Series LLC costs money--usually several hundred dollars. Those costs can go up depending on if you need additional features for asset protection purposes. The Series LLC isn't unique in this regard. In reality, forming any company is going to cost you money. But forming a company correctly is difficult to do on your own, unless you're an attorney. If you aren't an attorney, you'll almost certainly need the guidance of one.

Lawyers aren't cheap, but if you want a correctly-formed entity you can rely on, this is an expense worth paying for. The alternative is doing it yourself, which means you risk making mistakes that your business will end up paying for in the end. You could lose liability protections, or even fail to register properly. The consequences of these mistakes are generally more costly than employing an attorney to oversee your company formation in the first place.

That said, Series LLCs do save immensely on start-up costs. This is because you're only going to file and pay fees once. If it comes down to using multiple Traditional LLCs or the Series LLC, the Series LLC actually is cheaper. How much you will pay is going to depend largely on what type of business you're running.

Series LLCs are Newer Business Structures

The Series LLC is a young entity compared to other corporation options. This means there hasn't been as much law made specific to the Series LLC. Courts operate on precedent, or previous rulings from other courts and prior changes in law.

When a legal concept or structure is as new as the Series LLC, it becomes difficult to predict what outcomes you'll face in certain situations. This is simply because you're entering barely-charted territory.

Bankruptcy

Bankruptcy is one example of where the Series LLC's newness can become problematic. If you're unfortunate enough to end up in bankruptcy court, your Series LLC may protect the items in your series. But it isn't certain.

Because there is little precedent on how the courts treat the Series LLC, it's impossible to say whether each Series would be treated as a unique entity. Similarly, we just don't know how the entity as a whole will be regarded by these courts. It's literally going to be up to the judge, and some business owners don't like this unpredictability.

The law is ever-changing, and the future is uncertain. For now, however, Series LLC protections have been able to withstand legal scrutiny and many attempts to breach its protections.

Ultimately, understanding how a Series LLC works and whether the Series LLC is right for you is going to depend on your business needs. If you're unsure whether this structure is the right fit for you, feel free to ask questions in the comments section below. You can also contact us for help forming the best entity for your business.

Series LLC Tax Treatment: How the IRS Sees Your Series Entities

The Series LLC comes with so many awesome features for real estate investors that some of us think it's darn-near magical. While it's certainly a powerful structure with plenty of useful applications, even the Series LLC is forced to acknowledge a power greater than itself.

No, we aren't talking about you. We're talking, of course, about the Taxman.

Admittedly, this isn't the sexiest topic in the world, but it's essential knowledge for responsible members of a Series LLC. We'll make this as painless as possible. Below, we'll go over how Uncle Sam views the series within your Series LLC and what you have to do to stay on his good side.

How Uncle Sam Treats the Series LLC

For tax purposes, the Internal Revenue Service treats the Series LLC very similarly to a traditional LLC. The major question I get about this topic is whether each individual series is taxed separately.

For now, the IRS regards the Series LLC as one big entity. This means, that each series within the structure is not considered a separate company and therefore does not require separate returns. Of course, you will have to declare any income you've gained from your Series LLC, and we'll elaborate on that below.

It's important to note that the Series LLC isn't without its tax advantages. Its status as a pass-through entity will save you money and spare you from excessive corporate taxes that you would pay for other types of companies.

How To File Taxes for Your Series LLC

Your operating company (also called the "shell" or "master" company) is what will appear on your tax return. Provided the series that made money for the relevant tax year share common ownership, you can take advantage of pass-through taxation and simply report all income on the Schedule E portion of your personal tax return.

There are ways you could file separate returns for each cell, but this is typically not recommended for Series LLC owners whose income is mostly coming from passive investments like real estate. We do, however, recommend that Series LLC owners keep thorough, separate records for their series to ensure liability protection and simplify the tax process. This applies regardless of how you choose to file.

How to Ensure You're Filing Properly: Get Help

Please keep in mind that this information about Series LLC tax treatment relates only to taxation at the federal level. State law can change more frequently, and your state may implement or already have state tax requirements specific to the Series LLC.

This is one of many reasons that smart Series LLC owners use qualified CPAs and attorneys to help them handle their taxes. Our experts at Royal Legal Solutions stay on top of the most up-to-date information about Series LLCs and tax law. If you still have questions about how to handle the taxes for your series LLC, you're not alone. We're here to help.

Don't wait until the Taxman comes knocking! Contact us to take advantage of your personalized consultation today.

Keep more of your money with a Royal Tax Review

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What States Are Permitting Series LLCs?

The Series LLC is beloved by investors and business people for its versatility and a broad range of benefits. However, it isn't a universal structure yet. Not all states allow the in-state formation of Series LLCs. Below, we'll go over which states do not permit Series LLCs. We'll also tell you what you can do if you live in one of those states. Don't worry--you can still form a Series LLC. Keep reading to learn how.

States that Offer Series LLCs

The Series LLC was initially pioneered by Delaware, a famously pro-business state. Even today, Delaware remains a popular state for entity formation. Other states followed in Delaware's footsteps, and today you can get a Series LLC in Texas, Tennessee, Utah, Nevada, Illinois, Oklahoma, and Iowa.

Though not technically a state, residents of Puerto Rico also have the option to form a Series LLC without ever leaving the island.

States That Don't Permit Series LLCs

As of this writing, the only state that doesn't allow the formation of an in-state Series LLC is California. California has specific and strict regulations governing business in general, and there is currently no such thing as a California Series LLC. Traditional LLCs are common, as are other types of entities and agreements. We've written about special considerations for California real estate investors before.

If your state doesn't offer a Series LLC, don't slam your hand down on the panic button just yet. There's a way to get around the restrictions of your location, easily and 100% legally.

How to Form a Series LLC From Any State

Fortunately, your Series LLC doesn't have to be formed in your state of residence. This means, provided you're a U.S. citizen, you can form an out-of-state Series LLC.

The following are the most popular states for forming a Series LLC:

Delaware
Texas
Nevada

Each of these options comes with specific operational, judicial, and tax benefits. Which option will be best for you depends on which features and perks you'll get the most out of. For more details, refer to our previous article on the best states for forming a Series LLC.

After you've selected a state and formed your LLC, you will be able to register the company with your state of residence. Even California allows its residents to register a Nevada or Texas Series LLC and conduct business within California. Of course, these laws will vary based on where you live. Each state will have its own regulations that dictate what you and your company must do to be in compliance with the law. You can get an idea of what you'll need to do by doing some basic research online.

However, the wisest course of action is to seek the guidance of an attorney with experience in entity formation, and ideally, experience with Series LLC in particular. At Royal Legal Solutions, we routinely help our clients select, form, and manage the best type of Series LLC for their individual situations. If you have questions about the best option for you or are ready to get started, don't hesitate. Reach out to us and schedule your Series LLC consultation.

What is a Pass-Through Entity & How Does It Help Real Estate Investors?

A pass through entity is a business structure, such as an LLC, Series LLC, or S-corporation. We use the term “pass through” because you can claim the income of these types of businesses on your personal income tax returns. Ordinarily, you would have to file a separate return for your business (or businesses).

The chief benefit of using a pass-through entity is that you won’t be taxed twice. Nor will you end up paying a CPA thousands of dollars to file a business tax return. Typically, other types of business structures will be obligated to file such a business return. We'll talk more about the best entity for real estate investors below.

Some of you may be starting to think this doesn't apply to you because you file a return jointly with your spouse. Well, you can relax. This poses no problems, and all the benefits described above would still apply. But there are some instances where you will have to file a separate return, despite using a pass through entity. The main case for this is if you're using a partnership return.

The Partnership Return and Taxes

Some states require at least two members in an LLC. So let’s say you file your LLC in one of these states and have another partner in it besides yourself.
In this scenario, you’re going to have to file a document called a partnership return. A partnership return is a separate return for your business itself. By separate, we mean separate from your personal taxes.

Due to the complexity of a partnership return and its filing process, you would be wise to recruit somebody to help you prepare it. I suggest you hire a CPA, ideally one who is also a real estate investor, to assist you in preparing your return. And now, onto the bigger concern for real estate investors.

Which Pass Through Entity Is Best For A Real Estate Investor?

I so love when the answers to complex questions like these are simple. This one can be answered in three words: the Series LLC. Hands down.
The Series LLC offers unbeatable asset protection, easy tax filing and is the foundation of a solid asset protection plan. To illustrate how this works, play along with the following example.

Say you own 6 properties. Instead of holding all 6 properties in one LLC, with a Series LLC you can create a “series” within your LLC. Each series will hold a single property. So you'll have seven companies total: the parent company, and then 6 individual series for your assets.

The benefit of this is if someone sues one of your series and wins, only that one property in that individual series will be vulnerable to costly judgments. That means the remainder, and likely the vast majority, of your wealth and assets would be protected. The Series structure protects those other assets and isolates them from the one in the line of legal fire.

Another great benefit is, no matter how many “series” you have within your LLC, they can all be filed on the same income tax return. This is a huge money-saver that you won't receive with a Traditional LLC. If you want to learn more, read my previous post about how the Series LLC works for real estate investors.

The Benefits of Series LLCs (Protection, Business Growth & More)

Real estate investing is an excellent way to put your money to work. The returns consistently outperform traditional savings and common investment vehicles, with little risk and low management.

There's only one problem. We live in the most litigious society on earth. Did you know one in four U.S. citizens will be sued in their lifetimes? Real estate investors face an even greater risk of lawsuit.

For years, the wealthy and powerful have shielded their wealth within layers of anonymous companies. Now you can do the same. The Series LLC is one of the central legal structures in any asset protection plan. Let's look at the benefits of using one.

A Traditional Limited Liability Company Isn't Enough To Protect Your Assets

Property in your name leaves you open to losing it all: Litigation doesn’t even have to have anything to do with your property in order to wipe you out. If you have property in your name, or even worse, in a general partnership, and are found liable in a car wreck or other random accident, you could lose everything. Insurance is not going to stop a plaintiff from going after anything and everything you own to repay damages for extensive hospital bills or a wrongful death action.

Property in a traditional LLC or corporation isn’t much better. You are in a little better shape if you have all your assets in one traditional LLC or corporation. In that case, lawsuits against you personally can’t normally touch your business assets. But if you have all your assets in one LLC, and there is a slip and fall at one of your properties that results in serious injury or death, a plaintiff can go after all your properties. It doesn’t matter that your other properties are unrelated to the incident.

Insurance Won't Protect Your Investments

Insurance can help with minor incidents, but it’s not going to save you from losing everything in the case of a big, catastrophic lawsuit. If someone falls through your stairs and the court finds you are at fault because of the nature of the structure or maintenance, your insurance will likely not cover you at all. And certainly, neither your property nor your automobile insurance will cover you if you are found negligent in a serious accident.

The one thing that can save you from disaster is setting up an LLC Series and Anonymous Trust. Plaintiffs can never reach all of your assets because they are owned by separate legal entities and never in your name.

How the Series LLC Structure Protects You

1. Compartmentalizes Your Risk

Setting up an LLC Series Structure legally isolates your equity into separate limited liability companies inside a holding company. Even if you lose a lawsuit, the damage is limited to a single property or asset within the individual series.

The Series LLC works for multiple types of investments. It's great for property management but is equally effective at protecting other investments like a stock portfolio.

2. Hides Your Assets

In a Series LLC, your assets are each separated into individual entities. You can add an anonymous trust to each of these entities for further protection.

Limited liability companies and other business entities are exposed to the public. Anybody can look up your company name and see what type of assets it contains. Trusts, on the other hand, do not need to list their holdings publicly. When combined with the Series LLC, it makes all of the individual holdings essentially invisible. The anonymous trusts own the LLC itself and serve as title trusts for the real estate asset.

How a Series LLC Protects You From Lawsuits

There are three pillars of any lawsuit: opportunity, incentive, and the judgement. Winning a judgement requires a good lawyer, a friendly judge or jury, and a little luck. Clearly, that isn't the pillar we want to focus on. Instead, asset protection strategies target opportunity and incentives.

1. Plaintiff Attorneys Can't Sue What Isn't There

An accident on your property plants the seed of opportunity, but it isn't enough to kick off a lawsuit. In order to put things in motion, the lawsuit attorney must be able to sue you.

An anonymous Series LLC can remove this opportunity in two ways.

Using a Shell Company: Did you know you can break your company into two separate companies? The first is an asset holding company, which isolates assets into individual entities. The second is an operations company, which manages the day-to-day affairs. With some minor adjustments to your contracts, you can require all lawsuits to be brought against the operations company. This acts as a shell company, which means even if you lose the lawsuit there is nothing of value to be lost.

Using Trusts: As mentioned previously, hiding your assets within trusts means your assets are invisible. Even if you could be sued, your opponent's legal team won't be able to find which company to bring the case against. This dramatically reduces the opportunity to bring a lawsuit against you, even if there was some event that could be used as justification for doing so.

2. Attorneys Won’t Gamble or Chase the Money

Not only does a series LLC structure legally protect your assets, because your equity is in multiple legal entities, but it also discourages most lawsuits from ever being filed. Attorneys will not take a case unless they know how they will get paid. If equity is held in multiple LLCs set up with anonymous trusts it will appear on a search that you own very little – if anything at all. Attorneys will look elsewhere for an easier payday.

Plaintiffs need to pay at least $5,000 to even start litigation, and the amount quickly escalates to over $10,000 once discovery starts. It simply does not make sense for a plaintiff to file a lawsuit when they cannot find any assets that can be seized if they win a damage award.

Series LLCs Let You Grow Your Business Forever

With the Series LLC structure, there's an operating company on top, and multiple companies beneath. We use the metaphor of "parent-child" relationships to make the point that this structure lets you have as many "kids," or Series, as you like.

Each Series is its own LLC, and you can create new ones easily as you acquire more investments or other assets. As a bonus, you save money by using a Series LLC rather than the same amount of Traditional LLCs. You pay the costs of establishing the LLC once, and only once.

Series LLCs Protect Your Valuable Assets

Anonymity protects you as an individual and keeps your name off of the assets. Without a name, it's impossible to sue you personally. Suing the assets is possible, but more difficult.
Isolated assets mean only one asset is ever vulnerable at a time--the rest of the structure is immune to litigation.
Asset protection strategies in general make that sole asset someone wants to sue you over not that worthwhile. Attorneys don't like to take cases if there's not a prize (in the form of cold, hard cash, or a valuable asset) worth fighting for.

This is just the quick and dirty version. See our previous article on how the Series LLC prevents lawsuits to learn more.

Series LLCs Offer Great Tax Benefits

That's right, even Uncle Sam is kind to the Series LLC. We could write a whole article on tax benefits alone, but here are our top two.

1. Save on Business Taxes

2. Simplify Your Tax Returns

Is There a Catch?

Setting up LLC protection for your real estate business is fast, cost-effective, and scalable. You can be fully protected inside of only a week! There is a one-time set-up of the series structure for the limited liability company. Then you simply purchase a title transfer for each property you want to move within the asset protection vehicle.

There is no more work for your accountant with a series LLC. Though there are separate legal entities, there is a holding company LLC which is owned by an anonymous trust. This means there is still just one tax return, one LLC filing, one EIN, and one operating agreement. After it is set up, you won’t even notice it’s there in your normal course of business.

Setting up the initial structure is inexpensive considering the massive protection you will get and its infinite scalability. You can sleep better knowing your real estate investments and passive income have full asset protection with an LLC series structure and anonymous trusts.

Real Estate Asset Protection Explained: Series LLC Structure With Anonymous Trusts

A proper asset protection strategy lets you sleep easy at night even if you are sued. Below, I will share with you the secrets that will let you go about your business as usual even if you’re threatened by a lawsuit. With asset protection on your side, you’ll barely even worry about the fears that are giving other investors grey hair overnight. After implementing a proper strategy, lawsuits will never even get filed and the problem is gone before it even starts.
Asset Protection for real estate investors is premised on two parts:

Isolating the assets for liability purposes inside of a Holding Company and
Hiding the assets from being connected to you or the Holding Company.

Additionally, the company structure we use is scaleable at no additional costs or fees, streamlines your taxes, can be used in conjunction with traditional financing, and allows for the traditional recording keeping you are likely already using. After it is set up, you won’t even notice it’s there in your normal course of business.

Which Type of Company Should I Use to Hold My Real Estate Investments?

The best holding company for real estate asset protection is the Series LLC. You can think about the Series LLC as a Parent-Child relationship. The Series LLC is the Parent, and it can have as many children as it wants. Each child is known as a ‘Series.’ Even though the Series LLC is technically one company with one state filing and one tax return, each child Series is treated as if it were its own LLC for liability purposes.

Each Series is typically designated with its own letter, beginning with Series A. The picture below can help you understand the structure. This means that if a lawsuit is filed against Series A, it cannot impact Series B, Series C, etc. A lawsuit against Series A can only affect the assets held in Series A.

In the diagram above, the LLC has three Series. Each Series holds only one property. REI Asset Holding LLC – Series A owns a single asset, a piece of Real Property located at 123 Main st. If someone filed a suit over that property, it would not jeopardize the properties located at 456 Main st. or 789 Main st.

Moreover, if there was a lawsuit against the owner of the parent LLC, that lawsuit could only collect against the assets of the owner - not against the assets of the LLC. Lawsuit against the owners of LLCs structured this way can only impact the owner's personal property. We recommend never holding property in your own name. This way, if a lawsuit is directed at you personally, it cannot affect your assets. They are secured inside the Series LLC structure.

How To Stop a REI Lawsuit Before It Even Starts

The Series LLC limits our downside risk in the event of a lawsuit since it limits the maximum amount we can lose, which is only the amount held in the Series. However, limiting the amount of the lawsuit is our last resort. What we want is a protection system is that stops the lawsuits before they are ever filed. This can be accomplished in three simple steps.

Step One: Understand What Motivates Real Estate Lawsuits

To stop a lawsuit before it is filed you have to take out one of the three essential pillars of a lawsuit. The essential pillars of a lawsuit, or what attorneys need to make a case worthwhile, are:

The law,
The facts, and
The recovery.

The law and the facts are generally easy to fabricate, and any decent lawyer can find a basis for a lawsuit that will survive summary judgment. The asset protection system we put in my place for our clients attacks the third leg, the recovery.

Step Two: Attack the Recovery Phase

Recovery is the ability to seize assets and get paid after winning a judgment. A judgment is worthless on its own: it's only a piece of paper. Judgments are only as valuable as the assets that can be seized with it. So, before a case is filed, an attorney will always research whether there are assets to can seize from the defendant after victory in court. If it appears that the defendant has very little or no assets, then the lawsuit isn't worth the attorney's time and effort.

The vast majority of the time, this piece of the asset protection plan alone stops the suit dead in its tracks. There are rare exceptions, such as when the client coming for your assets is angry enough to spend thousands simply to satisfy personal self-righteous spite. But in the real world, most people aren't willing to drop that kind of cash on rage alone. The wheels of justice really do rind slowly. Lawsuits take months, sometimes even years, to unfold. Anger tends to burn off far quicker.

Step Three: Make The Other Attorney Lose All Hope of Recovery With Anonymous Trusts

To show the opposing side that there will be no recovery from the lawsuit, we hide the assets using Anonymous Trusts. These Anonymous Trusts can own the LLC itself as well as serve as Title Holding Trusts for the real estate asset. The LLC typically must disclose the members of the LLC on the filing instruments called the Articles of Incorporation. However, the member listed on the filing can be an Anonymous Trust. Since the Anonymous Trust is a private document and it is not filed with the state, anybody researching the Owner or Beneficiary of the Trust will be unable to find that information in the public records.

Additionally, anyone researching the owner of the real estate asset by searching the County Clerk records will only find the name of the Anonymous Land Trust. Typically, the property owner’s name is listed on the County Clerk’s records, but in this case the owner of the property would be listed as the 123 Main St. Trust. Since the owner of Trust and the beneficiary is not registered with the state, they cannot find out that the Series LLC is the beneficiary of that Trust. For more clarity, I refer to the Anonymous Trust used for filing the LLC itself as the “Filing Agent Trust” and the Trust used for holding the real property as the “Anonymous Land Trust”. The Filing Agent Trust in the below example is the actual owner of the Series LLC.

Bottom Line: A properly implemented Anonymous Trust and Series LLC structure can give you total anonymity. Your name won't appear anywhere, making even filing a lawsuit incredibly difficult.

What Should I Expect For Tax Planning?

The tax structure with the above entity is typically done in one of two ways depending on the number and type of owners. If the owner is a single individual or a married couple, then the entire structure is a pass-through entity. In these cases, you (and possibly your spouse) simply report the income on your personal income tax return under Schedule E. In cases of unmarried investor-owners, the LLC will need to file a partnership tax return.
Financing inside of a company structure should only be done once traditional personal financing is exhausted. Traditional financing typically has better, cheaper terms than the commercial financing required if the property is purchased directly in the name of the LLC.

Once the property is purchased in your personal name, the property will need to be deeded into the company structure. Deeding the property into the company structure will violate the Due On Sale clause located in the mortgage. However, we have not seen a bank foreclose based upon the Due On Sale clause since before 1960 as long as the payments are made. I hear of lots of threats, but I have not seen any banks actually do it.

How Do I Keep Records and Make Sure My LLC Will Not Be “Pierced?”

There are several things you must do to keep an LLC from being pierced. These include filing franchise tax, having an operating agreement, and managing the money correctly. Where I see most of my clients drop the ball is on the money management and record keeping.
The recording keeping for the structure is likely very similar to what you already do for your basic accounting of the investment. For any investment, you need to know the profitability of the particular asset purchased, so you need to have records which reflect the amount of capital invested into the asset, the amount earned buy it, etc.

The Series LLC structure above will require you to maintain the records of each Series separately just as if they were separate companies. In many cases, all this requires is for you to “tag” the entries in Quickbooks so that the entry is shown in correlation to the specific company. If you do not use Quickbooks, you can get the job done with an Excel spreadsheet. But be sure to add a new entry any time you add or withdraw money from the bank account for the company. If you forget to do this a few times, it's not the end of the world. You can always go back after and “catch up” on the accounting. Court will allow this as long as it is “reasonable.” Nobody expects you to be perfect, but don’t abuse it.

Series LLCs (SLLC) 101: A Primer

Whoever said, “If it sounds too good to be true, it probably is,” wasn’t familiar with a Series LLC business structure, or SLLC.

Real estate investors around the nation are benefiting from this organizational framework. For many investors, the primary appeal lies in simplicity, safety and flexibility. Any nominal drawbacks can be readily addressed, or even proved to be advantageous, with the professional guidance of an asset protection specialist such as Royal Legal Solutions.

Take a few minutes to read the following overview to enhance your business or investment strategies.

SLLC Definitions

Series:

Another term could be, “child”, “project”, “subsidiary” or “company”. Picture a honeycomb, as in a beehive, with one or an infinite number of independent “cells”. For our purposes, the partitions between these “cells” aren’t made of wax, but of solid steel. Properly constructed, one unit may or may not complement the overall functions of others. Properly constructed, none rely on others in order to function. Each is autonomous.

LLC:

Once “series” is affixed, another term could be, “parent”, “umbrella” or “the beehive”. Now the bees enjoy economy and efficiency, but the beekeepers and bears can only attack a single, isolated, “cell”, one at a time. All the other “cells”, the entirety of the beehive, remain in tact.

The Delaware Model:

Barely more than 20 years ago, the Delaware Legislature, lobbied by the mutual fund industry, developed the innovative means to reduce duplicate paperwork, transparency, and liability in matters of taxation or litigation. Presently, at least 16 states, Puerto Rico and D.C. have adopted some form of this legislation.
NOTE: With very rare exceptions, anyone can register a business of any type with any Secretary of State. Regardless of residency, whether your legislature has adopted the Delaware Model, a variation thereof or none of the above … establishment of, investment in, an SLLC can be available to anyone.

Origins of the Series LLC

There is a unique objective of an SLLC that can provide exceptional advantages compared to a traditional LLC or any other business structure. As referenced above, back in 1996, Delaware created the vehicle by which a single entity can be managed independently as “one” or operated as an alliance of “many” at the same time.

Texas law is essentially a mirror-image of what many refer to as, “The Delaware Series LLC” … ‘same benefits and advantages, with no requirement for annual renewal fees or paperwork.

Even in states other than Delaware and Texas, there are the same two common denominators. Existing in the best of both worlds, an SLLC is an LLC with internal departments and an unlimited number of LLC ‘s under one ownership. There is no distinction as to whether any “member” (“owner”) is an individual, sole proprietor / DBA, corporation, non-profit, partnership, spouse or even human or external LLC.

Some Advantages of the Series LLC

Barring any violation of law, government regulations or public policy, an SLLC Operating Agreement enjoys “maximum flexibility” and “freedom of contract”. Members have extraordinary latitude in making their own rules and terms.

There is no pre-determined tax rate or business category. In general, membership may be able to elect to file and pay as sole proprietors, partners, corporate shareholders, non-profits or have the SLLC be the taxpayer of record. Specifically, of course, the entity must be created in a way that is fully compliant while optimally beneficial. Tax liability of the whole is limited to individual members’ respective risk, gain, compensation or stake as defined by the Operating Agreement. “Double taxation” (on the SLLC and the membership) is most often avoided.

Contingent upon the state’s “shield laws”, members are generally protected from liability for the acts or debts of the SLLC. This protection is extended to membership enrollments as few as one. In the realm of real estate and real estate investment, each property can be treated as separate entities. One deal gone south, one “slip and fall” lawsuit, should have no impact on the profits of other projects or the members thereof.

The economy of a Series Limited Liability Company is not “limited” to lower tax liability, or the savings in administrative manpower and paperwork. One filing fee paid to the Texas Secretary of State will put you in business, no matter how many bees or honeycombs there are or may be subsequently added to the hive. Unlike other states or business entities, to include Delaware, there are no “renewal fees” … annually or at any other time in the state of Texas.

Caveats

Presently, there are about 15,000 words, about 50 pages and over 600 subsections in the Texas state statutes which govern LLC’s and SLLC’s. No one can quantify or apply all the associated rules and regulations now in place with federal, out-of-state and foreign agencies. (e.g., Canada doesn’t even recognize such a legal entity, but Canadians can participate in U.S. SLLC’s.)

Yet consistently, after 2 decades, the innovative “Delaware Model” (Series LLC) appears to be immune to significant litigation or legal challenges. With only 5% of the world’s population, the U.S. is home to 80% of the planet’s lawyers. Regardless, we’re still trying to find many legal cases in which Texas, Delaware or any states’ similar laws have even been contested. The only thing better than winning a lawsuit is never having one filed.

Yes, the fundamentals are simple, safe and flexible. No, they aren’t “idiot-proof”. Then again, any reasonably smart business owner can avoid any pitfalls:

Get a lawyer. Not just any lawyer, but a specialist who has the credentials, experience and expertise in this very specialized field. One whose practice is exclusive to the protection of client assets, pre-empting litigation and aggressively defending against any threats to the beehive.
Exercise sound judgment. As your attorney will advise, do not misinterpret the simplicity or flexibility of an SLLC as a license to ignore sound business practice, your own due diligence, responsibilities or accountability.
Nail the Operating Agreement. A well-structured and detailed Operating Agreement is secondary only to a sound business plan, reasonable expectations and absolute trust in other members’ integrity. More importantly, trust yourself and a legal expert.

Series LLC Examples: When Things Go South Legally

There is no business model that provides complete immunity from market reversals, natural disasters, or changes in laws and regulations. Stuff happens to everyone, in every business.

And when even the best-laid plans of talented and successful business people go awry, the polygamous marriage among companies, creditors, or customers often end up in court. Unlike holy matrimony or other business models, Series LLCs can protect all parties in advance.

Most often, with the right lawyer as “Best Man” or “Maid of Honor” chaperoning the courtship, the headaches and heartache of divorce court can be avoided altogether.

When The Series LLC Saves The Day: Two Examples

The first comes from real life: the premier, if not only, case in which a federal bankruptcy court upheld the concept and validity of SLLCs and denied a creditor’s attempt to game the system in their favor. The second is hypothetical, but has real-life implications. After all, “happily ever after fairy tale marriages” are exactly that: fairy tales.

Regardless, all levels of state, local and federal government (courts, legislatures, regulatory agencies, the I.R.S. itself) are interpreting and enforcing myth as reality. Judges, politicians, and bureaucrats don’t like change. They love inertia, momentum and precedent–campaign speeches notwithstanding.

Example 1: In re Dominion Ventures, LLC, No. 11-12282 (Bankr. D. Del.)

Now, it’s impossible to get two lawyers together without getting lost in a gigantic bowl of word salad or a maze of rabbit holes. Put them in a courtroom in front of a judge (who’s also a lawyer) and things actually get simpler. The focus and facts are limited to a relevant Reader’s Digest version. Legalese will be kept to minimum.

Dominion, a legitimate and reputable group of businessmen, established an SLLC in full compliance with state law. Both the “parent” company and each of the “children” cells operated independently, maintained separate accounting, and did everything “by the book.” That included using sound business practices. One thing led to another and Dominion needed some help on credit and cash flow. “Creditor X” to the rescue!

All that was required was a change in the original Operating Agreement and absolute veto power over all operations and decision making. Well, the bailout didn’t prevent the boat from sinking and ultimately everyone ended up in Bankruptcy Court. Now remember, the issues had nothing to do with SLLC legislation. Things just didn’t work out. “Creditor X” claimed that its after-the-fact position prevented SLLC protection and that all assets of all “children” should be consolidated to satisfy the debt.

Maybe “Creditor X” should have retained a lawyer who had the experience and expertise to advise against the unenforceable loan at the altar. At the end of the day, the assets of Dominion, its members (owners), and all other respective creditors of the individual “parents” and “children” were protected.

Example 2: Moldy Mary vs. Larry Landlord, (S) LLC

Larry Landlord bought his first duplex just after his graduation from high school. The property wasn’t much to look at, but it was cheap and he was handy with his hands. Four years later, a complete repainting of the exterior, and a brand new roof had improved the curb appeal. The kitchens were remodeled. The flooring, plumbing, and paneling were upgraded. Weeds and dirt had been replaced with immaculate landscaping. Prospective tenants had to get in line on a waiting list.

So, he bought another rental property. And another. And another. All under the protection, as independent series, of an SLLC. Tenants clamored for a space in his well-maintained, well-managed rental properties. As many investors were knocking on the door to participate in the next project.

Eventually, Larry had expanded operations to include 14 properties (and 14 segregated series), to include 5 apartment complexes and 10 members (owners). Each was fully compliant with state law requirements for documentation, maintaining separate bank accounts, tax filings, and accounting. Some participants were members of a dozen common projects. Some had invested in only one. According to sound business practice, common sense, and the exercise of due diligence, the group hired a a highly reputable building inspector. He gave the building a comprehensive evaluation for each unit.
A sixth property, a high-rise apartment complex costing as much as all other holdings combined, came onto the market and Buster Bankroll contacted Larry. Knowing nothing about real estate or property management, Buster wanted to invest as an absentee landlord. Negotiations went well. Occupancy was at 94% after the first month.

Moldy Mary was one of Larry Landlord’s very first tenants. She’d been living in the same apartment, owned by a different series, for about 8 years. A few years previously, after a particularly heavy rainstorm, she’d noticed water spots on her walls and a peculiar smell in her bedroom. The next day, Larry Landlord’s maintenance crew arrived, replaced a section of roofing shingles as well as some interior sheet rock.

Fast forward to 6 months later. Mary got sick. Really sick. So did her husband and three kids. Medical bills exceeded insurance limits. Neither spouse could work and lost their jobs. The entire family was forced to leave the apartment and move in with relatives.

But to prove a point, when the family contacted Louie Litigator, lawsuits were filed the same day. Multiple, massive lawsuits. Fortunately for Larry and Buster and all other members (including those who owned Mary’s series), the SLLC was on their side.

Based on every legal protections provided to the Delaware SLLC structure only one of the choices below are NOT true. Let us know which you chose:

Larry Litigator did an hour’s worth of research and determined that liability lies with only the series that owns Mary’s apartment. He has withdrawn from the case and the “blood-from-a-turnip" strategy.
The members of the series who own Mary’s apartment have no exposure beyond their investment.
The very specific language of statutes and growing legal precedent will not threaten the assets Buster or Larry or all other members of any and all other series (or Larry Landlords, (S)LLC).

Guess in the comments section below.

Learn More About the Series LLC

Learn more about the Series LLC here on the Royal Legal Solutions website. We've written extensively about the benefits of the Series LLC, and given much more information about how the Series LLC works. We offer many more educational materials on this subject because we believe all real estate investors have the right to be informed. If you're considering forming a Series LLC, contact us for your consultation today. We'll get the job done right, and keep your head above water if things go South!

What Makes a Series LLC Different from an LLC?

Have you heard about the Series LLC? It's basically a newer and better version of the normal LLC. Now you might be wondering, what makes the Series LLC different from a normal LLC? Hint: if you have children, you'll catch on fast.

The Series LLC works as if it's a parent-child structure. At the top you have the parent, the Series LLC. It'll have an EIN number and an official formation document stating what state you formed the Series LLC in.

Below the Series LLC you have the series themselves. You'll have series A, series B, etc. The series are what I refer to as the children because they all come from the original Series LLC parent. In this way the Series LLC looks like a family tree.

A Series LLC Can Grow Forever

A Series LLC is just like a parent, it can have as many children as it wants, unlike a normal LLC. And this might surprise you, but just like in real life, these children don't cost any extra money to create. That's true before AND after they're born.

Whereas, if you want to put 10 properties in 10 normal LLCs, you'd have to pay state filing fees for each LLC you form.

Each series in a Series LLC is going to be treated for liability purposes as if it were its own LLC. You can take advantage of this by putting one property in each series/child.

This means if you ever have a lawsuit resulting in some type of action against a house belonging to series A, it won't affect the houses held in series B or C, etc.

I forgot to mention, do you like doing joint ventures? The Series LLC is perfect for doing joint ventures!

For example, series C could be a joint venture agreement with as many people as you would like without involving the other series. It'll have its own EIN number, tax return and its own operating agreement to conduct the business of your JV agreement.

The Series LLC Is More Efficient Than a Traditional LLC

The Series LLC is the next evolution of the normal LLC. Compared to a normal LLC, A Series LLC is:

More tax efficient
More cost effective
Better at protecting your assets

And best of all, you'll be able to file each one of your series (no matter how many you have) on the same tax return. This means thousands of dollars a year in tax preparation savings for you.

If you have any questions about forming a Series LLC I'd be happy to answer them in the comments below. Learn more about how a Series LLC can help you expand your business. If you're ready to form yours, contact us today.

Do I Need A Registered Agent for My Out Of State LLC?

Whether you're new to the real estate business or not, if you do business outside of your home state you're going to need an LLC registered agent. Learn more about this requirement and how to satisfy it below.

Why a Registered Agent Is Required For Every LLC

An LLC registered agent is required in every state that it does business. The only reason for the registered agent to even exist is because if someone wants to sue your LLC, and they're not able to get to a member or manager personally to be able to serve them. Then this allows them to serve the lawsuit onto the Secretary of State and be able to have a person that must receive service of process or the lawsuit. Typically, these services are able to be engaged for anywhere from between 40 and $75 per year online. And they're all fungible, meaning that they're all the same, no matter where you go. So I always recommend saying, what's the best deal that you an get, and be able to go with that. My name is Scott Smith, I'm an Asset Protection Attorney at Austin, Texas. I'm a real estate investor, and I wanna help you.

Why Is a Registered Agent Required For My LLC?

The purpose of the registered agent is to receive legal correspondence. So for example, if someone wants to sue your LLC, they'll mail the notices to your agent and not your house.

A registered agent is your LLC's point of contact for all legal matters in the state which it does business. The agent is legally responsible for all of your LLC's tax and legal documents.

So, let's say you formed an LLC in Delaware and you live in Florida. You would be required to get someone (it can honestly be anyone) who is a legal resident of the state of Delaware to be your LLC's registered agent. However, there are some exceptions to this requirement.

A few states allow your LLC to be its own agent. And in most states, you won't have to get an agent as long as you have a physical address in that particular state. (Don't try to use a PO box!)

Also worth mentioning is that you can be your own agent.

Can I Be My Own Registered Agent?

Yes you can! But fair warning: If you decide to be your own registered agent, you will be legally responsible for all of your LLC's tax and legal documents. This may cause you to miss an important piece of mail while you're on vacation or sick, etc.

The advantage in having someone else be your agent is that it removes your legal liability. And in that sense, a registered agent is a form of asset protection. Hiring an agent should cost you between $40 and $75 per year online.

And don't worry, they're all the same no matter where you go. So you won't have to compare anything except price when you shop around for an agent.

What Happens if I Don't Get a Registered Agent?

If you don't get an agent, you may be subject to fines and kept from entering into legal contracts or the state court system in the particular state that your LLC was formed in. Some states will even file criminal charges against you.

If you have any questions about registered agents and LLCs, feel free to ask me in the comments below. In the meantime, learn more about LLCs and the all new Series LLC structure.

If you still have personal questions or want to learn more about Royal Legal Solutions' Registered Agent Service, contact us now.

The Different Kinds of LLCs & The Way They Pay Taxes

Surprise surprise, for every different kind of LLC, there are also different taxes. It's important for you to know the different taxes for each kind of LLC. You want to keep your friends at the IRS on your good side, don't you?
Let's go over the different types of LLCs, along with the taxes you have to pay for each particular LLC.

The Single-Member LLC

The single-member LLC is an LLC with only one member, as its name suggests. The single-member LLC will always have passthrough LLC tax treatment. This means that instead of having to pay the 39.1% corporate tax, you can include the profits of your LLC on your personal income taxes.

A Married Couple LLC

A married couple LLC is an LLC whose only members are two people who are married to each other. A married couple LLC will usually have pass-through tax treatment. But this isn't the case if the LLC is formed in a community property state.

If your LLC is formed in a community property state, you will have to file a partnership tax return for your LLC. As of 2018, the following states have community property laws: Louisiana, Arizona, California, Texas, Washington, Idaho, Nevada, New Mexico, and Wisconsin.

If you file a partnership return, you and your spouse will have to include your respective share of the profits on your income taxes.

Multi-Member LLC

If your LLC has two members that aren't married, then it's considered a multi-member LLC. A multi-member LLC receives pass-through tax treatment. Each member will claim his or her share of the LLC's profits on their respective personal tax returns.

The Series LLC

If you've read my blog before, you may already know a bit about the Series LLC. The Series LLC allows you to create as many "series" as you want. They operate directly under your original LLC, but are treated separately for liability purposes. When it comes to paying taxes with an LLC, things can get tricky.

For example, in California, each series in a Series LLC will have to pay an $800 franchise tax. But in Delaware, no matter how many series you have in your Series LLC, you'd only pay the $300 franchise tax one time.

Because the Series LLC is fairly new, most states allow you to choose the way it gets taxed. Although as new laws get passed, this may or may not change from state to state.

If you have any questions about the tax treatment of LLC's feel free to ask me in the comments below, I'd be glad to help you! In the meantime, check out our previous posts to learn more about pass through tax treatment.

Making Your Real Estate Dream Team

Believe it or not, making your real estate dream team only requires three people. You need an attorney, a CPA and a deal maker. A deal maker is either a real estate agent or a wholesaler. For the attorney and the CPA, don't go cheap. A good attorney is worth their weight in gold.

You're investing thousands of dollars. Make sure the deal you're working on is going to be protected. As an attorney, that's what I do. I make sure your company structure, as well as the deal itself is going to flow.

My job is to make sure you're not going to lose your money based upon a legal technicality. Or some other event that's going to cause you a legal headache.

A CPA is also worth its weight in gold in terms of tax savings. Especially after your company gets off the ground a little bit, you're going to want to hire a CPA who's also a real estate investor. A CPA is going to know exactly how to structure the tax savings that's gonna save you the most amount of money.

The Cost Of Your Real Estate Dream Team

Now you might think, wow, I have to pay these people a lot of money for a bunch of years and that's going to cost me a ton. Well maybe not. If you're doing a repeatable kind of business, then it's gonna be the same types of legal documents, as well as the same types of taxation that's going to occur every year. Now there's going to be some minor tweaks here and there to the legalities as well as the tax structure.

But any generic CPA at that point is going to be able to look at the model used by that attorney and by the other CPA that's a specialist and be able to tell you where you're gonna need to tweak a tax return. That will mean long term savings for you.

As far as the wholesaler or your real estate agent goes, these are really the crux of your business. Because those are the people that are going to actually be the ones making you money.

Don't Cheap Out On Your Real Estate Dream Team

As a real estate investor myself, I pay my team well. After all, what they really want to do from their position is cultivate a few number of select clients (hopefully you) to be able to build up their business.

This benefits all parties involved because now they don't have to market their business out to hundreds of people and deal with all of the phone calls and headaches from that. And you get to make consistent profits.

If they could just have a few clients and be able to buy all of the properties it makes their life a lot easier. This also means that you're competing against much less people, in terms of who's negotiating after the fact about what that particular deal is going to be worth.

This increases your leverage in being able to make more money working with those people. Now you might not be able to have enough money to be able to keep a wholesaler exclusive to yourself. Which is fine because...

The Series LLC Comes Into Play

Think about the way you can JV (joint venture) with other partners in bringing in other money to investing in a particular deal. If you combine that JV strategy with a series LLC, you're able to get into more deals at no additional cost.

Remember, the series LLC structure allows you to create as many series as you want. And each one of those series is treated as its own LLC.
That means you can bring in their own JV partner. With its own EIN member, operating agreement, everything that you would do in a traditional LLC. And bringing the money there, the Series LLC doesn't require you to have any additional filing.

So you can literally create a new series on your desktop with a new operating agreement bringing in that JV money and closing the deal with that wholesaler before anyone else is gonna be able to do it.

I hope you found the above information useful. And remember, when it comes to making your real estate dream team, don't cheap! Especially on the CPA.

Things You Need to Get Your Series LLC Started

Open a Bank Account

Invest in Your Company

Loan Yourself Money for Your Series LLC

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Series LLC Formation

Series LLC Taxes

Legal Considerations

Costs Of Operating An LLC Vs. a Series LLC for Real Estate

LLCs Can Function as Pass-Through Entities

The Benefits of a Series LLC

“Member” vs “Manager”

Series LLCs at Royal Legal Solutions

Series LLC Protection

The Series LLC “Box”

Operating Agreements

Fewer Requirements, More Freedoms

Differences Between A Series LLC and an S Corporation

What States Allow The Use Of Series LLCs

Legal and Professional Help On Your LLC

Royal Legal Has Worked With Many Series LLC's

The Similarities

The Differences

Professional Guidance

Series LLCs Let You Grow Your Business Forever

Series LLCs Protect Your Valuable Assets

Series LLCs Offer Great Tax Benefits

Save on Business Taxes

Simplify Your Tax Returns

Can The Series LLC Have an Unlimited Lifespan?

Why Should I Care About My Company's Lifespan?

How Do I Form My Series LLC?

Series LLCs Aren't Cheap

Series LLCs are Newer Business Structures

Bankruptcy

How Uncle Sam Treats the Series LLC

How To File Taxes for Your Series LLC

How to Ensure You're Filing Properly: Get Help

Keep more of your money with a Royal Tax Review

States that Offer Series LLCs

States That Don't Permit Series LLCs

How to Form a Series LLC From Any State

The Partnership Return and Taxes

Which Pass Through Entity Is Best For A Real Estate Investor?

A Traditional Limited Liability Company Isn't Enough To Protect Your Assets

Insurance Won't Protect Your Investments

How the Series LLC Structure Protects You

1. Compartmentalizes Your Risk

2. Hides Your Assets

How a Series LLC Protects You From Lawsuits

1. Plaintiff Attorneys Can't Sue What Isn't There

2. Attorneys Won’t Gamble or Chase the Money

Series LLCs Let You Grow Your Business Forever

Series LLCs Protect Your Valuable Assets

Series LLCs Offer Great Tax Benefits

1. Save on Business Taxes

2. Simplify Your Tax Returns

Is There a Catch?

Which Type of Company Should I Use to Hold My Real Estate Investments?

How To Stop a REI Lawsuit Before It Even Starts

Step One: Understand What Motivates Real Estate Lawsuits

Step Two: Attack the Recovery Phase

Step Three: Make The Other Attorney Lose All Hope of Recovery With Anonymous Trusts

What Should I Expect For Tax Planning?

How Do I Keep Records and Make Sure My LLC Will Not Be “Pierced?”

SLLC Definitions

Series:

LLC:

The Delaware Model:

Origins of the Series LLC

Some Advantages of the Series LLC

Caveats

When The Series LLC Saves The Day: Two Examples

Example 1: In re Dominion Ventures, LLC, No. 11-12282 (Bankr. D. Del.)

Example 2: Moldy Mary vs. Larry Landlord, (S) LLC

Learn More About the Series LLC

A Series LLC Can Grow Forever

The Series LLC Is More Efficient Than a Traditional LLC

Why a Registered Agent Is Required For Every LLC

Why Is a Registered Agent Required For My LLC?