LLC Terminology


Members: own the LLC.

Members may all participate equally, may elect a few Members to look after the LLC or may appoint Managers to look after the LLC’s business operations

Managers: manage the LLC on a day-to-day basis.

Managers may be members or outside parties.

The combination of tax deductions and taxation treatment makes LLCs attractive from a business perspective, while the asset protection and liability protection for investors that LLCs receive from limited partnerships makes them very attractive from a legal standpoint. And, after a key IRS ruling called “Check the Box,” LLCs have been able to make voluntary tax elections as they see fit. For these reasons, LLCs have quickly evolved into the premier business structure for both business and investments.

Unlike a limited partnership, there is no personal liability associated with the operators of an LLC. That means there is no need to protect management by creating a second business structure. One LLC can do the job of a limited partnership with a corporate general partner. That’s why we’ve seen the use of Limited Partnerships decline so steeply in the last 10 years.

In some states there is also another kind of LLC, called a Series LLC. Currently permitted by law in the states of Delaware, Iowa, Illinois, Nevada, Oklahoma, Tennessee, Texas and Utah, this is an LLC that is allowed to have an unlimited number of subsidiaries, called Cells. Each Cell is considered to be independent of the other cells, and may have different ownership and operators.

Run properly under state law, Series Cells can have liability protection from each other, meaning you could have several LLCs co-existing under one main LLC. The main LLC generally functions as a gatekeeper, and doesn’t always have a business of its own (although it certainly can).

There are some huge upsides to using a Series LLC, which we’ll talk about later on. One of them is cost. Once a Series LLC is set up, there is usually no cost to create Cells. They can be established by simple internal documentation, and set up in a matter of hours, rather than days or weeks. Plus, regardless of how many Cells are created, the LLC still pays a single filing fee, a single maintenance fee, and requires just one resident agent. In states with high filing fees, this one element can make a significant difference to your bottom line.

However, the documentation is more complex and there are other taxation considerations to be taken into account. Because Series LLCs are so unique, and require so much personalized tailoring, the nuts and bolts of planning, establishing and maintaining a Series LLC are beyond the scope of this book. If you are interested in learning more about this vehicle and when it may be appropriate for your business,
visit our website, www.SmartBusinessIncorporation.com, and do a keyword search on Series LLC. We also have a product, The Series LLC: The Ultimate in Business Structure Flexibility available on our website. You can also contact Megan Hughes, at megan@smartbusinessincorporation.com

There are many variables when you’re structuring a business. That’s why it’s hard to go through a quick-service website. Unless you talk to someone who’s got some knowledge and experience on both the tax and the legal side, it’s hard to know what you don’t know. And that can leave you vulnerable.

Got questions? Contact us! We’re here for you.

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