What Is a Series LLC?

What is a series LLC? A series LLC is an individualized version of an S-Corp LLC, also known as a Resale clause limited liability company. A Series LLC combines elements of an S-Corp LLC and an LLC. The reason the LLC was invented in Delaware was because it allows individuals to have more than one business entity. A small business owner, for instance, may have assets located in more than one state.

• What about income tax benefits? Most small business owners and entrepreneurs are well aware that in the case of an S-corp LLC, there are usually no restrictions on how the LLC’s assets are invested. That means that there are no capital gains taxes (or income taxes) due when they sell or buy the LLC’s assets. Because of this, a series of LLCs can be set up quickly and easily, allowing the small business owner to defer paying taxes on his or her business profits until such time as they receive the full amount from the sale or distribution of their LLC’s assets.
• The most important thing about a series of LLCs is that they allow you to form a limited liability company (or an “independently operated” limited liability company). This means that you, the person most often setting up such a company, will not be personally liable for the debts of any of the LLCs that are part of the series. It also means that if one of the LLCs goes bankrupt, all of the other LLCs are still solvent. The IRS treats an “independently operated” limited liability company just like a C-corp in regards to tax reporting. If an owner of a series of LLCs does not owe money to any of the LLCs, he or she will be able to report all of his or her profits as being a pass-through income, which allows that owner to avoid many of the taxes that would be due to an individual who is married.
• However, it should be noted that an “independently operated” LLC does not need the same type of liability protection as does a C-corp. A C-corp needs at least one employee, whereas an LLC may only have one or two owners. While an LLC generally pays taxes on its own income, it is important to remember that it is not required to pay taxes on the income of each of the LLCs that are a part of the series. This can be a significant difference when a business is first getting started, since many new business owners do not have a significant amount of debt or assets to release to cover such tax liabilities.
• An “independently operated” LLC has a number of advantages for business owners who wish to use limited liability companies for their businesses. For example, with an “independently operated” business, the business owners are able to control their tax liabilities, while avoiding the liability that comes with business ownership. In addition, they are able to maximize the benefits of the various types of business ownership options available through LLCs. The most obvious example of this is the ability to use an LLC for the purpose of limiting personal liability. Because an LLC does not have to pay taxes on its income or assets, the business owner will be able to deduct expenses related to the operation of his or her LLC.

Limited liability companies are now being used more by small businesses throughout the United States. As the popularity of the business grows, so does the need to understand what a LLC really is and how it affects a business’s ability to be treated as a single entity for tax purposes. Because of this need, the IRS is now proposing major changes to the way that states treat LLCs. These changes will affect not only the tax code but the way that LLCs are taxed in other states.