Series LLC: Questions and Answers


Diane Kennedy and I did a webinar recently on Series LLCs. You can see the replay for a short time over at www.ustaxaid.com/series. And check out our limited-time offer that incudes having a Series LLC formed for you, here: http://www.ustaxaid.com/shop/Series-LLC-Year-End-Special.html

We had a bag full of questions and ran out of time. So, I’m answering all of your questions in my blog. And, of course, if anything you read this week brings on another question, ask away!

Converting Regular LLCs to Series LLCs

Question:         Is the Series LLC appropriate to take advantage of your side-streaming model? I’m in Wisconsin, not one of the states that recognize Series LLCs. Instead of one service company – ‘LLC-S’, I would also have 3-4 ‘LLC-C’, potentially all under the series umbrella. Are there “control group” issues with the LLC cells if more than one of them are LLC_Cs?

Answer:           Yes, you can use a Series LLC in a side-streaming model, especially if you are making different tax elections for each Cell. Side-streaming in a passive model, where the Cells are owned by the Parent wouldn’t work anyway – as it’s all going onto one return.

Before you jump in though, remember that when you own 51% or more of multiple C Corps you are creating a controlled group for taxes. That means some of your deductions are limited, and spread across all of the companies, and benefits provided in one company, such as health care, must be provided across all companies as well. You can have employees in one C Corp structure with no health care, and a plan for yourself alone in another. Whether or not the controlled group status impacts your or not is a conversation to have with your own tax advisor, as everyone’s situation will be different.

Tax ID numbers for Series LLC Cells

Question:         When you apply for a separate Tax ID number and fictitious name/DBA name, do you need to apply from the Parent LLC or can you simply file from the Cell?

Answer:           Applying for the Tax ID number is done through the Cell’s name. That may also include the Parent name, i.e., Butterfly Holdings LLC – Monarch Series, as opposed to applying for an EIN under simply “Monarch Series.”

The DBA will also depend. Sometimes it can be simpler to apply in the name of the Parent, rather than the Cell, but check with your provider and state to be sure.

Banking with Series LLCs

Question:         Does each cell require a separate bank account? Can funds be comingled b/n parent LLC and individual cells?

Answer:           Yes, in some situations. For example, let’s say you’ve got a Series LLC that is holding real estate. You want to use the Parent LLC as your central point for all money to come in and expenses to be paid out, and you want to use a number of Cells to hold title to each of your properties. You can treat the Parent LLC like a property management company, and take in all the rent and pay out all the bills, and you can do it all through one bank account. But you’ll still want to be keeping separate accounting records, so you could pull a statement for any Cell showing its income and expenses.

If you have companies that are doing other things, maybe providing services or selling goods, having separate bank accounts is preferable.

Sometimes comingling is unavoidable, especially with banks not understanding the structure. What we often suggest is filing DBA applications for the Cells and opening up multiple accounts under the Parent LLC – one for each Cell, using the DBA for the account name. That is a better way to separate out banking information without comingling funds.

At Smart Business Incorporation, we specialize in helping investors and business owners develop structures to run their businesses, protect their assets and keep as much of their earnings as possible. If you want to know how to best structure your next business, visit our website or drop us an email at info@smartbusinessincorporation.com. We’ll be glad to help.

Related posts:

Leave a Reply