What is a Delaware Series LLC?
The Delaware Series LLC is a limited liability company without a predetermined shape. When you form a series LLC in Delaware you can think of the entity you form with the Delaware Division of Corporations (this is what is known as “the master”) as an umbrella. In Delaware, beneath this umbrella, you can add as many series as you want, and each series can act as its own separate entity (basically its own LLC), entering into contracts, operating a separate business, each series comes equipped with its own limited liability protection. Different members and managers can be assigned to different series and individual series in Delaware can even elect to be taxed as differently (one series can be taxed as a partnership while another can elect to be taxed as a C or S-corp). The number of series that can be created in a Delaware series LLC is unlimited.
So, in short, a Series LLC in Delaware is basically a lot of mini-LLCs operating under the umbrella of one LLC?
How to form a Series LLC in Delaware:
- File a Certificate of Formation with the Delaware Division of Corporations (this is the same form a typical Delaware LLC would file).
- In the fourth clause (this section is sometimes referred to as the purpose clause) of the Certificate of Formation provided by the Delaware Division of Corporations, include specific language from Delaware’s Limited Liability Company Act added to that section:
“Notice is hereby given pursuant to Section 18.215(b) of the LLC Act that the debts, liabilities, and obligations incurred, contracted for, or otherwise existing with respect to a particular series of the LLC, shall be enforceable against the assets of such series only and not against the assets of the LLC generally, or any other series thereof, and none of the debts, liabilities, obligations, and expenses incurred, contracted for, or otherwise existing with respect to the LLC generally, or any other series thereof, shall be enforceable against the assets of such series.”
- Submit the Certificate of Formation to the DE Division of Corporations and pay the $90 filing fee.
- The series within the LLC do not need to file their own Certificates of Formation. The Delaware Series LLC structure is laid out within the operating agreement.
- In the Series LLC’s operating agreement, explain the company’s structure, including the managers and members of each series and what type of tax structure will be assigned to each series.
- Each series in the Delaware Series LLC will need to apply to the Internal Revenue Service (IRS) for its own Employer Identification Number (EIN), as each series will be treated as a separate entity for tax purposes.
What are a Delaware Series LLC’s costs and filing fees?
The filing fee for a Series LLC in Delaware is $90. The fee is paid to the DE Division of Corporations when filing the Certificate of Formation. The fee doesn’t change no matter how many series are established within the Series LLC.
Similarly, a Delaware Series LLC will only pay one annual tax to the Delaware Division of Corporations. A Delaware LLC’s annual tax is $300, due by June 1 each year.
Does each series in a Series LLC have limited liability?
In theory, each series within a Delaware Series LLC should have its own limited liability in the case of lawsuits. Additionally, a series debts, contracts, bankruptcies, and other liabilities should not affect any other series within the LLC.
Those forming a Series LLC should be aware, however, no Series LLC has been tested in a court. A court ruling against a Series LLC could invalidate the entity. However, the Delaware Series LLC would likely be the safest bet as the entity originated in Delaware and any cases concerning the validity of its structure would likely land in the Court of Chancery, Delaware’s court for businesses.
How is a Series LLC in Delaware taxed?
Just as each series within a Delaware Series LLC operates as its own entity, each series can choose how it will be taxed. In 2010, the IRS issued its proposed rules for Series LLCs. The IRS clearly stated that each series within a Series LLC will be treated as a separate entity for tax purposes. Each series can have its own tax designation, which means one series could be taxed as an S Corp, while a different series could be taxed as a C Corp, and another could be taxed as a partnership.
Do Series LLCs in Delaware need multiple EINs?
If each series within the Series LLC is operating as its own distinct business, each series will need to file its own tax return. In order to file a tax return, each series needs an Employer Identification Number (EIN).
EINs are obtained through the IRS by filing Form SS-4. You can apply for an EIN online, by phone, or by mail.
Can a Delaware Series LLC do business in other states?
Only certain states and territories other than Delaware recognize Series LLCs. District of Columbia, Illinois, Iowa, Kansas, Minnesota, Montana, Nevada, North Dakota, Oklahoma, Tennessee, Texas, Utah, Wisconsin, and Puerto Rico allow the formation of Series LLCs. California has established rules for foreign Series LLCs operating in the state, but does not allow the formation of Series LLCs.
Series of a Delaware LLC can operate outside our state, but do so at their own risk, as the Series LLC has not been tested in court. Each series would need to register as a foreign entity doing business in the state.
Many other states will likely adopt rules concerning Series LLCs once the IRS formalizes its rules.
Can a Delaware Series LLC have different members for different series?
Yes. Just as a Series LLC in Delaware could have theoretically an infinite number of series, a Series LLC designate an infinite number of different members or managers to be in charge of each series. These designations are assigned in the Series LLC’s operating agreement.
What are the advantages of Delaware Series LLCs?
1. The Court of Chancery
The lack of court decisions concerning the Series LLC may make some entrepreneurs wary, but if the Series LLC is going be upheld as it is written into law, it’s going to be in Delaware where businesses have their own court system.
Delaware Series LLCs file the same forms as a regular LLC, which means much of the members’ personal information isn’t required on the public document. The structure of the series are laid out in the company’s operating agreement, and that document isn’t filed with the state. Most of a Series LLC’s will stay private.
3. Multiple LLCs for Less
A Delaware Series LLC only pays one filing fee and one annual tax no matter how many series are formed within the entity. The Delaware statute also doesn’t mention added registered agent requirements, which means a Series LLC should only need one Delaware Registered Agent.