LLC & Series feedback

11 Replies

Wanted to get some informal BP feedback on legal entities, and realize this is not legal advise.

I wanted to learn more about setting up legal entities for REI. After finding a mention of a law firm which specializes in REI law here on BP, reviewed its site & scheduled an appointment. The appointment went well, learned a fair bit, liked the overall concept which was proposed and quoted: a solution incorporating traditional LLCs, series LLCs & trusts in the $7k range.

My concerns: Series LLC have been around ~ 20 years now, and can only be formed by some US states.  As I intend to purchase properties across various states (some of which are where Series cannot be formed), I am wondering about the legal uncertainty surrounding Series as well as the potential difficulties of using it across state lines.

Thanks in advance!

In regards to Series LLCs and states that recognize them or not, the issue comes down to each specific state recognizing the "internal liability shield." Not if they have a Series LLC to create in that state or not--an investor in any state can form a Series LLC in a different state if he or she wants one. Every state has an internal liability shield for LLCs and that is what is analyzed in every state: the LLC Internal liability shield of the state you're being sued in.

There is a misconception that the Series LLC is a new entity. It is not. It was first created in 1996 in Delaware, over two decades ago. While the Traditional LLC is more established, it is not much "older." The Traditional LLC first became available in Wyoming in 1977, but most other states did not follow suit until the 1990s. The next state was Delaware, which enacted LLC legislation in 1995, followed by California in 1994/5. It was not until 1996 that all states had an LLC option. The same year, the Series LLC was statutorily created. So it's interesting how people quickly fall in love with the Traditional LLC thinking it's been around forever. But the reality is that after the creation of the LLC in most states, the Series LLC immediately came into the game. Just one year after California codified the traditional LLC.

Hope this helps a bit. If you have more specific questions feel free to reply and let me know! I know this was a bit general, but I don't want to ramble on forever as I can have a tendency to do on the forums.

@Scott Smith Interesting... just recapping for my own clarification: each state as its own internal liability shield because of original LLC, but not every state recognizes Series LLC as part of that internal liability shield?

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Originally posted by @Joe E.:

@Scott Smith Interesting... just recapping for my own clarification: each state as its own internal liability shield because of original LLC, but not every state recognizes Series LLC as part of that internal liability shield?

Not quite, but it is a good clarification. Every state has an internal liability shield for LLCs and that is what is analyzed in every state: the LLC Internal liability shield of the state you're being sued in. The limiting factor is that some states have not adopted the legislation to form a Series LLC within that state.

For example, if I form a Texas Series LLC and have a property in Florida held by one of the "child series," then if there is legal action the property will be analyzed against Florida's internal liability shield. There are still only a handful of states that allow the creation of the Series LLC, but you can still be protected with a Series LLC in all 50 states - it's just that the different "series" are analyzed different in different states due to their bent on the internal liability shield.

@Scott Smith Ah, that clicked ... able to create Series in some states, which can be used to protect assists in all states per their legislation setup.

Thanks for your insight, and patience!

Originally posted by @Scott Smith:
Originally posted by @Joe E.:

@Scott Smith Ah, that clicked ... able to create Series in some states, which can be used to protect assists in all states per their legislation setup.

Thanks for your insight, and patience!

 You are most welcome!

Hey Scott I have a question for you. What in your opinion stops a non series LLC stat from "collaps[ing] the series structure and allow[ing] the plaintiff to get a judgment against the parent LLC" as another attorney has put it?

To better understand, I've been connecting with BP owners on their working experiences with Series LLC.

Most had the parent Series in a trust for the asset owning side, and then either had cells own assets straight or also included a trust with the cell. Public operations were in non Series LLC.

Between purchasing, refinancing or selling assets, they experienced challenges with the functionality of financing with both Series and non Series states which involves multiple communications between financial entities, lawyer, CPA, and buyer or seller.

@Joe E. I would deem it wise to have a Traditional LLC that you use for operations or as a "shell" company. And then a Series LLC for asset holding.

It is correct that for optimal protection you will have trust embedded in the Series LLC, the structure looks like this (for lack of having a chart available at the moment here we go:

​Series LLC (parent LLC)

Agent Trust (anonymity)

Child Series A >>>123 Main Street Trust >>> Property: 123 Main Street

Child Series B>>> 456 Main Street Trust >>> Property: 456 Main Street

Child Series C >>>789 Main Street Trust >>> Property: 789 Main Street.......... (etc)

The ​Series LLC, is a great structure that was created for investors who intend to scale and grow. It also involved land trusts to aid in offering the ​best financing options while also offering you ​anonymity. My clients have not expressed any issues with the purchase or sale of any properties that are in the Series LLC entity nor any issues with taxes. Its actually quite the opposite. But, this is where the need for an experienced team comes in to provide the appropriate guidance.

If you want any clarification on any of these points just tag me again and I can answer them or feel free to send a DM.

*This isn't legal advice, just my opinion as a real estate investor.

@Scott Smith Ok, tracking most of that so far. And again, thanks so much for your help!

From a work flow perspective: 123 Main St. generates cash flow, which is titled to 123 Main Street Trust & held by Child Series A.

How does it get from there to the operational Traditional LLC, and then ultimately to me (presuming at the parent Series/Trust)? Structure I understand now, it's just overall work flow.

Also, for the operational Traditional LLC, wouldn't I be self-employed at that point?

Originally posted by @Joe E.:

@Scott Smith Ok, tracking most of that so far. And again, thanks so much for your help!

From a work flow perspective: 123 Main St. generates cash flow, which is titled to 123 Main Street Trust & held by Child Series A.

How does it get from there to the operational Traditional LLC, and then ultimately to me (presuming at the parent Series/Trust)? Structure I understand now, it's just overall work flow.

Also, for the operational Traditional LLC, wouldn't I be self-employed at that point?

Sorry for the late response, I was out of town for a short time. 


This is where you need to  get pretty comfortable with your bookkeeping, since you want to track these very accurately in order to maintain the corporate veil and avoid commingling funds. With that being said, it is still very straightforward. I will compare the two most common ways people approach this:

W/ Traditional LLC: (1) rent collected for '123 Main St.' by Traditional LLC-> (2) Funds deposited to Traditional LLC bank -> (3) Funds transferred to Series LLC bank as a "contribution from '123 Main St.' Child Series A -> (3) Funds can be transferred from Series LLC bank to you as a distribution.

W/out
Traditional LLC: (1) rent collected for '123 Main St.' into your name (or by your property manager) -> (2) Funds deposited to your account (or the account of the property manager) -> (3) Funds transferred to Series LLC bank as a "contribution from '123 Main St.' Child Series A -> (3) Funds can be transferred from Series LLC bank to you as a distribution.

You just want to show a paper trail in order to prove that the entity operates on its own. Mainly you want to ensure the contributions and the distributions are correct, so that you don't commingle funds by using the LLC accounts as your personal account. The trick is that the burden of proof would be on you to show that the funds are flowing properly in court, so you just want to get comfortable transferring the funds correctly. But, as you can see above, the Traditional LLC removes a lot of the risk with yourself as the "middle-man" in the process.

The Series LLC and Traditional LLC are both considered a disregarded (pass-through) entities. Because they are disregarded, you will report your tax information for the LLC on your individual tax return.

Feel free to shoot me any additional questions you might have. I usually explain this stuff while talking, so if this still isn't clear, just let me know!