Just because you have an LLC, it doesn’t necessarily mean that your growing business is protected in the right way. Each business is unique, which is why it’s best to compare your entity options. Depending on how your company is structured, you need personalized advice about an LLC vs. series LLC.
The simplest way to determine which type of LLC is ideal for your business is whether you have a single line of business or multiple properties or ventures. A standalone LLC can be a great option for a simple business plan. But when multiple lines of business are involved, and you need legal separation, then a series LLC might make sense.
What Is a Traditional LLC?
A traditional LLC is designed to keep your personal assets separate from the company’s debts. Keep in mind that this structure protects the whole entity, not your individual assets inside it.
If you have multiple properties and they are all under the same LLC, then it means that all of these properties are sharing the liability. This means that if there is a lawsuit tied to one of your assets, then the other assets could be exposed as well.
So, a traditional LLC is an easy solution for just one business or property. But if you are planning to move forward with multiple ventures, then it probably makes sense to consider a series LLC instead.
What Is a Series LLC?
Think about a series LLC like an umbrella: you have one parent entity in place, with multiple ventures underneath in a structure that keeps the holding assets and liabilities separate.
When a series LLC is formed and operated correctly, it reduces liability exposure overall. For example, if there is a lawsuit tied to one of the series, then it usually is not able to reach the other assets in another series.
These protections vary depending on your location and the state’s laws. Even though some states don’t recognize series LLCs, these entities are recognized in Texas. So, reach out to a Texas series LLC attorney to see if this entity structure is right for your multi-property portfolio.
One thing that every business owner needs to understand: a series LLC isn’t automatically bulletproof. This shield only applies if each series is kept separate and there are no overlapping accounts or records.
LLC vs. Series LLC: A Side-by-Side Comparison
Here are a few things to keep in mind if you are trying to choose between an LLC and a series LLC:
- The upfront costs for multiple standalone LLCs will be higher since you’ll have ongoing filing fees for each. On the other hand, a series LLC consolidates the formation under one parent entity, which can save money overall.
- If you have a series LLC, then you still need to maintain separate documentation and recordkeeping for each of the series. If you make a mistake and skip this step, then it could eliminate the entity protection and cost benefits.
- The only way to have real separation under a series LLC is by running each series as its own business. Never assume protection if you aren’t taking these steps to keep the properties separate.
Ultimately, you need to look at the type of separation you actually need based on your business. Talking with a Texas series LLC attorney is the best way to determine the ideal LLC asset protection for multiple properties.
Who Actually Benefits from a Series LLC?
There are clear benefits from a series LLC for real estate investors, especially since the liability is isolated from property to property. This approach can protect your properties more effectively, without having multiple formation costs at the beginning.
Additionally, business owners who are running multiple ventures under one roof often benefit by using a series LLC. But it’s important to ensure that each of the ventures is distinct and that there is no crossover between the businesses.
On the other hand, if you are the owner of a single asset, then it probably doesn’t make sense to set up a series LLC. There’s no need to complicate things with added complexity, especially when a standard LLC is likely sufficient for your needs.
Where Business Owners Get This Wrong Without Legal Guidance
One of the most common mistakes business owners make is setting up a series LLC and then failing to keep separate records for each series. If the funds are shared across the different properties or ventures, such as using one bank account to cover the funds for all of the series, then you don’t have proper separation, and liability may be shared.
Another common issue that can be avoided by having the right legal support is improper or incomplete formation documents. You must have all of the documentation in place for the structure to be legally recognized. So, it’s a good investment to hire an attorney who will prepare and review your formation documents upfront.
FAQs
What’s the main difference between an LLC and a series LLC?
A traditional LLC is designed to protect just one business or property, while a series LLC allows you to put multiple ventures under one LLC while still keeping them separate for liability and legal purposes.
Can one series in a series LLC be sued without affecting the others?
Yes, if your series LLC is properly formed and maintained (with separate records), then a lawsuit affecting one property or venue can’t affect other assets in the series LLC.
Do I need a lawyer to form a series LLC, or can I do it myself?
While there is an option to file the series LLC paperwork yourself, hiring a lawyer is a good choice to ensure that the formation and recordkeeping will actually hold up in court if needed.
How Bhojani Law Helps You Choose and Structure the Right Entity
Are you trying to decide on the best entity structure for your business? Our team at Bhojani Law is always here to help you choose between an LLC vs series LLC. We’ll evaluate your assets, business, goals, and risk exposure, then offer personalized recommendations for your unique needs.
Not only can we assist by drafting your LLC agreements, but our team also offers ongoing compliance support so that your liability shield is always intact as your business grows. We’ll help you get it right from the start so that you can avoid expensive issues in the future.