Limited liability companies (or LLCs) have long been the business entity of choice for many Nevada residents, and for good reason. LLCs allow significant operational flexibility while simultaneously shielding assets from liability. However, few are aware that Nevada is one of only a small number of states that have enacted legislation specifically authorizing what are commonly known as series LLCs.
A series LLC is a limited liability company, duly registered and licensed by the state, that allows for creation of internal divisions or sub-LLCs (each referred to as a series), similar to branches stemming from a tree. In theory, each series (or branch) can hold its own assets, segregate its own liabilities, and have managers and members that are completely separate from both the main LLC and any other internal series.
This separation creates liability protection for each series, meaning that the assets in one series will not be subject to the liabilities of another. An additional benefit is cost savings. Although the main LLC is required to pay annual registration and licensing fees, each individual series is not. In fact, each series is created internally without any registration or licensing requirements.
Nevertheless, series LLCs are still relatively new and somewhat unproven. Consequently, some third parties like banks and government agencies are quick to raise their eyebrows when initially confronting this unique business model. Furthermore, the distinctive characteristics of series LLCs spark many issues that defy easy answers in such areas as taxes, bankruptcy rights, and recognition by other states, to name just a few.
Strict adherence to operational formalities and attention to detail is vital to ensure that your series LLC is not only valid but also offers you the maximum liability protection possible. Thus, a cautionary word to the unwary: the utmost care must be taken when drafting a series LLC’s governing documents and when conducting its daily operations. In those regards, assistance from an experienced attorney will prove invaluable.