Series LLCs and Banking

Seems that every week I get a client asking about opening up a bank account for their Series LLC. And it seems that there’s no shortage of difficulties out there.

There are a couple of reasons for this. First, even though the structure has been around in Delaware and elsewhere for several years now, it’s still really new to a lot of people … banks included. Account representatives and branch managers aren’t trained to deal with the structure very well, if at all. Even if you do get things done at the branch level, it still has to be approved higher up the food chain. And, because of their own licensing and governmental compliance restrictions, this funny, unfamiliar structure is often a real stumbling block, when really, it shouldn’t be.

Where bank usually have the biggest problem is the lack of filed Articles for the Series Cells. Under state law (except for Kansas and Illinois), Series LLCs don’t file anything to create a Series with the Secretary of State. There literally isn’t any way to file anything. So it can be frustrating when a bank representative keeps asking for Articles that you don’t have to give them.

So what do you do when the bank won’t play ball and you need to get an account open to do business? Well, you get creative.

First, make sure that your banker understands what you are trying to do. Give them a copy of the Articles and the Operating Agreement for the main LLC. These documents show them that your LLC is a Series, and has the authority to create Cells. Heck, give them the portion of state law that relates to the Series if you need to. Remember, when this goes up the chain to head office, it will like wind up on an attorney’s desk, eventually. Giving them something they understand can help.

Then, make sure to give them the documents for your Cell, including its separate Tax ID number (if you’ve gotten one).

If they still balk, ask about getting filed Fictitious Business Name, or DBA applications for your Cells. This usually does the trick, because the DBA applications are government-issued. What you’ll probably wind up with is a main bank account for the parent LLC, with sub-accounts under it, one for each Cell with a DBA. That’s okay – as long as you can get separate bank cards and checks, you’ll have a way to keep your records segregated.

If all else fails, and you are stuck with just opening up a single account in the name of the Parent LLC, then you may want to at least open up separate accounts at multiple banks. You may have Cell #1 banking at the ABC Bank, while Parent LLC banks at Community Bank, and Cell #2 is over at a local credit union. It’s not ideal, but you can still track money coming in and out and make sure the money is properly accounted for in your own accounting records.

The one thing I really want to stress with Series LLCs is record-keeping. The laws for each state that has adopted Series LLCs is very clear that asset protection comes, in part, due to you keeping separate books and records. Having your bank not cooperate isn’t a deal-breaker, as long as you are picking up the slack and can clearly demonstrate your intention to operate these businesses independently.

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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