More Tips on a Series LLC #TaxPlanning
Here are some additional tips on Series LLCs that you may want to consider.
1. I copied the exact language of the statute in my formation document:
The debts, liabilities and
obligations and expenses incurred, contracted for or otherwise existing with
respect to a particular series, whether now existing or hereafter established,
shall be enforceable against the assets of that series only, and not against
the assets of XYZ, LLC generally or any other series thereof, and none
of the debts, liabilities, or obligations and expenses incurred, contracted
for, or otherwise existing with respect to XYZ, LLC generally or any
other series thereof shall be enforceable against the assets of the particular
series in question.
2. I also included a supplemental provision making clear the limitation of creditors to reach the assets of the series LLCs:
1. I copied the exact language of the statute in my formation document:
XYZ,
LLC is a Series LLC within the meaning of Subchapter M, Sections 101.61 et seq,
Texas Business Organizations Code.
Refer to the attatched addendum, which is incorporated herein by
reference as if set forth in full, for detail notice of the series and the separate
rights, powers, or duties with respect to specified property or obligations of
the limited liability company or profits and losses associated with specified
property or obligations. The attached addendum also includes the names of the
series.
2. I also included a supplemental provision making clear the limitation of creditors to reach the assets of the series LLCs:
Supplemental Provisions/Information
Form 205 Certificate of Formation
Limited Liability Company
XYZ, LLC
This Supplemental Provision/Information
statement is included in Form 205 by reference as if set forth in full.
XYZ,
LLC is a Series LLC within the meaning of Subchapter M, Sections 101.61 et seq,
Texas Business Organizations Code which provides:
Sec. 101.601. SERIES
OF MEMBERS, MANAGERS, MEMBERSHIP INTERESTS, OR ASSETS. (a) A
company agreement may establish or provide for the establishment of one or more
designated series of members, managers, membership interests, or assets that:
(1) has separate
rights, powers, or duties with respect to specified property or obligations of
the limited liability company or profits and losses associated with specified
property or obligations; or
(2) has a separate
business purpose or investment objective.
(b) A series
established in accordance with Subsection (a) may carry on any business,
purpose, or activity, whether or not for profit, that is not prohibited by
Section 2.003.
The Series
limitations are as follows:
Sec. 101.602.
ENFORCEABILITY OF OBLIGATIONS AND EXPENSES OF SERIES AGAINST
ASSETS. (a) Notwithstanding any other provision of this
chapter or any other law, but subject to Subsection (b) and any other provision
of this subchapter:
(1) the debts,
liabilities, obligations, and expenses incurred, contracted for, or otherwise
existing with respect to a particular series shall be enforceable against the
assets of that series only, and shall not be enforceable against the assets of
the limited liability company generally or any other series; and
(2) none of the
debts, liabilities, obligations, and expenses incurred, contracted for, or
otherwise existing with respect to the limited liability company generally or
any other series shall be enforceable against the assets of a particular
series.
The Series LLC will comply with the following subsection
(b) of Sec. 101.602:
(b) Subsection (a)
applies only if:
(1) the records
maintained for that particular series account for the assets associated with
that series separately from the other assets of the company or any other
series;
(2) the company
agreement contains a statement to the effect of the limitations provided in
Subsection (a); and
(3) the company's
certificate of formation contains a notice of the limitations provided in
Subsection (a).
The names of
the Series LLC are:
456 Series, a Separate Series of XYZ, LLC
789 Series, a Separate Series of XYZ,
LLC
1A Series, a Separate Series of XYZ,
LLC
2B Series, a Separate Series of XYZ,
LLC
3C, a Separate Series of XYZ,
LLC
3. As you can see above, my convention was to name the series LLCs after the addresses of each property involved. You can of course use another convention to designate the names of series LLCs, just be consistent in your application of that convention.
4. The best explanation I've found when explaining the Series LLC to bankers (and I suspect the #IRS too) is that the mothership derives its power of existence from the State. The individual series get their authority from the mothership. Thus, its best to name each series LLC in your formation document. Don't rely on exclusively on the statutory authority.
5. I designated each series LLC as a disregarded entity. My plan for the mothership return is to include a separate form 8825, under the tax ID issued for the series LLC, with the income and expenses related to that series LLC.
I also included a statement on the mothership return setting forth the name of each series LLC, its Tax ID number and that its income was included in mothership's return. My thought was to make it as easy as possible for the #IRS to follow the logic.
6. I also included this similar disclosure in the mothership's Company Agreement, as well as each series LLC. The more often this disclosure appears the easier it will be to point it to those creditors who may be trying to attack its validity.
The mothership's Certificate of Formation was accepted by the Texas Secretary of state without comment. We were able to get the bank accounts for each series LLC after a little explanation and by picking a bank with whom the client had a prior relationship and also had some experience in this area. This was a large regional bank with decisions made at the local level and not at an out of state location. This was a plus. The next test will be when (or if) the #IRS raises any issues with the method of formation or tax structure. I will keep you posted.
#AustinTaxHelp #IRSPlanning #Tax Planning #SeriesLLC
