

With significant dollars at stake, it's wise for real estate investors who own multiple properties to look for ways to keep costs in check and minimize legal risks. For some, forming a series LLC may be the answer.
A series LLC (known as SLLC for short) consists of an umbrella LLC with separate LLCs beneath it. The series LLC business structure’s formation documents allow for multiple “series” within a master LLC to operate as separate entities. The series have their own business names, maintain their own bank accounts, and keep their own records. Each series’ assets, liabilities, operations and membership interests are separate from those of other series in the umbrella LLC.
The series LLC structure can benefit real estate investors with multiple properties in several ways. By setting up each property as its own series in a series LLC, investors can:
The series LLC isn’t an option for every real estate investor. Unfortunately, not all states allow businesses to form a series LLC.
Although California doesn't form domestic Series LLCs, the state does allow series LLCs created in other states to register as a foreign entity and do business there.
Another potential disadvantage of the series LLCs is that tax treatment and reporting requirements vary depending on the state. Sometimes, the rules aren't crystal clear. States might treat each series as a separate tax entity or have the master LLC and all series treated as a single entity.
Forming a series LLC is similar to registering a traditional LLC. Articles of Organization must be filed in the state where the master LLC will operate. Typically, that formation paperwork will need to reflect that the LLC is authorized to form series beneath it.
Also, each series should have its own operating agreement to define any unique rules that apply to it. A series LLC doesn't have to file its operating agreements with the state, but the business should keep them in its records. It’s helpful to ask the Secretary of State office and local government agencies to provide details on what must be done in their jurisdictions.
The entity type you choose will impact your startup expenses, tax obligations, legal and financial liability, reporting requirements, and ongoing business compliance filings. Before deciding on a legal business structure for your real estate investment activities, I encourage you to get professional legal and accounting guidance from trusted professionals. SCORE mentors can help you connect with knowledgeable resources in your community and provide you with valuable guidance on a myriad of business issues.
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