What is Series LLC?

How it works

The Series LLC was pioneered by Delaware (1996) as a way to create multiple internally segregated cells within a single LLC, each with its own assets, members, managers, and economic terms. Subsequent states adopted similar legislation: Illinois, Iowa, Nevada, Oklahoma, Tennessee, Texas, Utah, Wyoming, Puerto Rico, and several others.

Structure:

• Master LLC — the overall LLC formed at the state level. Has its own articles of organisation, registered agent, master operating agreement.
• Series — internal cells created by the master LLC's operating agreement (and, in some states, separately filed with the state). Each series:
  • Has its own assets, members, and operating terms.
  • Can engage in distinct business activities.
  • Has internal liability segregation — debts of one series cannot reach assets of another.

The structure is comparable to Cayman Islands segregated portfolio companies (SPC) and similar cell-company concepts in the offshore world.

Why use it

The standard pitch:

• Cost efficiency — one LLC formation fee, one annual report (in some states), one registered agent — vs. forming multiple LLCs each requiring their own.
• Liability segregation — series-level isolation provides risk walls between investments / properties / business lines.
• Operational simplicity — single tax-ID at master level (in some interpretations) reduces administrative overhead.

Common use cases:

• Real estate portfolio holders — each property in its own series; lawsuit against one property doesn't reach others.
• Fund-of-funds structures — multiple investment cells under one umbrella.
• Multi-business operators — distinct businesses in segregated series.

Critical limitations

The legal protection is real within the formation state — but uncertain elsewhere:

• Cross-state recognition uneven. A series LLC formed in Delaware may not have its series-level liability protection respected by a court in California or New York where the property / business is located. Courts there might pierce the series and treat the master LLC as a single entity for liability purposes.
• Bankruptcy treatment unclear. Federal bankruptcy law doesn't have specific series-LLC provisions; courts have inconsistently treated series as separate or unified.
• Banking complexity. Some banks open accounts at the master level only; others can open per-series accounts. Verify before structuring.

Federal tax treatment

IRS proposed regulations (2010) treat each series as a separate entity for federal tax purposes. This means:

• Each series can independently elect classification (disregarded, partnership, corporation) via Form 8832.
• Each series with US-source income / ECI files its own returns.
• For non-resident-owned series, each series with reportable transactions files its own Form 5472 + pro-forma 1120.

The "one tax-ID for everything" pitch some providers make is incorrect for federal tax. Each series typically needs its own EIN.

Examples

• Real estate investor with 5 Texas properties forms a Texas series LLC. Each property in its own series. All properties in Texas → series-level liability protection respected by Texas courts. One master LLC formation; 5 series; one registered agent. Cost-efficient compared to 5 separate LLCs.
• Same investor with 5 properties spread across Texas, California, Florida, New York, and Arizona. Forming a Texas series LLC is risky — California, NY, AZ courts may not respect series-level segregation. Five separate state-formed LLCs (or one master LLC + foreign LLC registrations) is safer despite higher cost.

Common mistakes

• Assuming series segregation works cross-state. Often doesn't. Verify the operating state's recognition.
• Believing one EIN covers all series. IRS treats each series separately for federal tax in most cases.
• Skipping the proper series operating agreement. Series LLC requires careful drafting at both master and series levels. DIY structures often fail liability protection.
• Choosing series LLC for solo single-asset use. A standard single-member LLC is simpler and equally protective for one asset / one business.