A series LLC is a limited liability company with one or more internal divisions. Each division of a series LLC may have separate business activities, objectives, liabilities, assets, members, and even managers. Each series of the limited liability company is protected from the liabilities of the other divisions and even from the LLC itself. The flexibility of a series LLC is convenient for those looking to form a single legal entity that is composed of separate distinct asset portfolios and/or ownership structures.
A properly organized series LLC in Nevada will have articles of organization and an operating agreement that states the structure of the LLC and its series of internal divisions. It is essential that the LLC’s operating agreement clearly states the objectives, relative rights, powers, and duties of the series within. Despite having protection from one another, a series is not viewed as separate entities under Nevada law – unless it’s regarding taxes, more on that later. Careful planning and an understanding of procedures can help produce a properly structured series LLC. A Nevada contract attorney can assist with drafting an accurate and compliant operating agreement.
There are risks associated with series LLCs. Prior to the issuance of proposed policies by the IRS in September 2010, very little regulation existed on the issue of federal tax treatment of series LLCs. When the IRS published the proposed regulations, each series was to be treated as its own entity, separate from the LLC, under local tax law and thus under federal tax law. Discussing a Nevada series LLC tax structure with a Nevada CPA is recommended. Furthermore, aside from tax issues, governing documents must be drafted carefully to comply with statutory drafting requirements. Failure to recognize such formalities could leave assets or members / managers exposed to risk and/or direct liability. The risk of potential litigation, wherein a series must answer to a jurisdiction that does not recognize series LLCs, must also be taken into consideration. In this instance, it is possible that the court in another jurisdiction may not acknowledge the existence of the different series within the LLC.
Although a more complete discussion of the pros and cons of Nevada series LLCs can be analyzed, it is recommended that the preceding discussion is presented to a trusted Nevada business attorney. The attorney can quickly identify potential issues during the beginning stages of organizing a series LLC in Nevada. A well-advised client is much more likely to succeed in taking advantage of the benefits a properly structured series LLC has to offer.
