The Benefits of Creating a Series LLC

Asset protection and limited liability are two of the main goals of forming limited liability companies (LLCs) that hold title to real estate. Once title to a parcel of real estate is transferred to an LLC, the owner of that LLC is generally shielded from the debts and liabilities incurred by the holding company.

Individuals that own several parcels of real estate may benefit from forming a Series LLC to hold title to their properties. A Series LLC follows the parent-subsidiary structure similar to corporations. First, a Master LLC is formed with the ability to establish Series. Then, individual Series under the Master LLC are created. Each Series is separate and distinct from the others and each Series is shielded from the debts and obligations of the others.

Formations

A Series LLC must first file Articles of Organization with the Illinois Secretary of State (Form LLC-5.5(S)) just as a standard LLC does. The only difference is the filing fee ($400 instead of $150) and an additional provision that must be added to the Series Articles of Organization. The additional provision details the existence of the LLC’s authority to issue series and further outlines the liability protection between each individual series:

The operating agreement provides for the establishment of one or more series. These Articles of Organization must be on file in accordance with Section 5-40 prior to the attestation and submittal of form LLC-37.40, Certificate of Designation. When the company has filed a Certificate of Designation for each series, which is to have limited liability pursuant to Section 37-40 of the Illinois Limited Liability Company Act, the debts, liabilities and obligations incurred, contracted for or otherwise existing with respect to a particular series shall be enforceable against the assets of such series only, and not against the assets of the Limited Liability Company generally or any other series thereof, and unless otherwise provided in the operating agreement, none of the debts, liabilities, obligations and expenses incurred, contracted for or otherwise existing with respect to this company generally or any other series thereof shall be enforceable against the assets of such series.

Tax Structure

A Series LLC that is owned by one individual or other business is taxed, by default, as a disregarded entity-sole proprietorship. This means that the holding company LLC is not required to file tax returns with the IRS. Instead, the sole owner of the LLC must report all profits and losses of the LLC on their personal tax returns.

Further, an LLC with two or more owners is taxed as a partnership by default, but may also elect to be taxed as an S-Corporation under the Internal Revenue Code.

Certificates of Designation

Once the Master LLC is created with the authority to establish series, a Certificate of Designation must be filed with the Illinois Secretary of State to create each individual series. Unlike the Series Articles of Organization, the Illinois Secretary of State’s website does not currently allow for Certificates of Designation to be filed online – they can only be filed by mail or in person at the Springfield or Chicago offices.

There are requirements concerning the names of each Series created under the Master LLC, such as each Series must contain the name of the Master LLC and then provide a distinguishing name. For example, a Master LLC can be named FP, LLC, with Series called FP, LLC – Meacham and FP, LLC – Jackson.

Corporate Compliance

Each LLC, whether it be a standard LLC or an LLC with the authority to issue series, must file an Annual Report with the Illinois Secretary of State (Form LLC-50.1). The Annual Report filings are necessary to stay in good standing with the Illinois Secretary of State and at the same time, maintain the LLC’s limited liability shield that keeps the debts and obligations of the business separate from its owners.

The standard filing fee for an Illinois LLC Annual Report is $75.00. For a Series LLC with active series, that $75.00 fee is increased by $50.00 for each established series. This reduced fee of $50.00 provides another benefit to organizing as a Series LLC. For example, if an individual were to set up three separate LLC’s (one parent company and two subsidiary companies), their annual reporting filing fees with the Illinois Secretary of State would be $225.00 per year. If the individual created a Series LLC and two individual series that are owned by the Master LLC, then the total filing fee would be $175.00 per year.



If you would like to discuss any of these topics further, please contact attorney Frank Portera at 847-705-7555 or fportera@lavellelaw.com.