Everyone’s heard of the LLC before, you may even have one yourself. But now there’s something newer and better. It’s called the the Series LLC and it’s quickly becoming one of the best asset protection strategies for real estate investors.
It’s been around since 1996, originally starting in Delaware. Recently the use of the Series LLC has become popular because more and more states are allowing these companies to operate.
The Series LLC is Like a Parent-Child Type of Relationship
I know that sounds weird. I’ll explain below.
Let’s say you have have one Series LLC. This is a company you will form in the state of Texas. When you form your LLC in Texas it will be recognized as a legitimate company inside of that state. However, unlike most LLC’s yours will outline special provisions in its operating agreement.
And it is through these special provisions that your LLC will have the ability to become a series and have “children”. By children I mean companies within a company. Separate, yet equal. With a Series LLC you’re able to create as many “children” as you want. Each child is known as a series.
This is a powerful advantage because each series is treated separately for liability purposes, just as if it were its own LLC. You might hate for me for this, but I personally think the Series LLC is better than the regular LLC.
Why Is The Series LLC Better Than The Regular Traditional LLC?
Because the Series LLC allows you to compartmentalize your assets. As an investor it’s important that you do this from an asset protection point of view. As the saying goes, “never put all your eggs in one basket”. A Series LLC allows you to do just that.
Another great advantage of the Series LLC’s is that it receives one EIN number which is filed underneath the company name. (You won’t have to use a new EIN number for each series you create.) This allows you to streamline your tax preparation so you don’t have to file taxes for each individual company.
If The Series LLC is so Much Better Why Isn’t Everyone Using Them?
It comes down to risk tolerance.
Some people think if a series was subject to a lawsuit that it wouldn’t be recognized in a state that doesn’t formally have a law regarding the usage of series. And if a series isn’t recognized in a lawsuit, you’ll lose all your legal protection. Which means someones attorney will “go to town” on your assets.
Unfortunately there haven’t been many cases regarding the recognition of a series from state to state. But there are a lot of good reasons and precedent suggesting a Series LLC would be recognized in any state. For example, states already recognize LLC’s formed in other states.
At the end of the day a Series LLC is still an LLC.
Do We Think Using a Series LLC is Too Risky?
You can always form a regular old fashioned single purpose LLC. However, these are more expensive than a Series LLC if you’re looking to separate your assets.
How are they more expensive? Well, you have to pay for the tax preparation for each one of those companies at the end of every year. Then you’ll get a nice bill for those LLC fees too. You’ll have to pay formation fees, operations fees, management fees and registered agent fees for each LLC you create.
Those fees will cost you about $1000 every year.
In the end all you can do is weigh your odds and consider the risk. How do you feel about the Series LLC versus the regular LLC? Let me know in the comments below, I’d love to hear your opinion as a fellow real estate investor.
And if you’d like to find out whether the Series LLC is right for you call us now!