Fundamentals Of The Illinois Series Limited Liability Company
Illinois Series Limited Liability Companies are governed by the Limited Liability Company Act (805 ILCS 180). A Series Limited Liability Company (Series LLC) is a distinct type of business entity recognized under the Illinois Limited Liability Company Act (805 ILCS 180). This business structure is specifically designed to allow for the segregation of assets, liabilities, and operations into individual series or units within the overarching LLC.
The primary characteristic of a Series LLC is its ability to create separate “series” or “cells.” Each series operates like its own entity with separate members, managers, assets, liabilities, and business objectives. This unique structure allows a Series LLC to conduct distinct business operations within each series while insulating the assets of each from the liabilities of the others.
One of the main benefits of a Series LLC is the flexibility it offers. The individual series can conduct different types of businesses or investments independently from the other series. This offers a business owner the ability to diversify ventures within a single LLC structure.
However, Series LLCs are more complex than traditional LLCs due to their unique structure. Each series requires careful management to maintain the separateness of assets, liabilities, and operations. To establish and maintain the liability protections of a Series LLC, meticulous record-keeping is essential. Each series must maintain separate books and records, and assets must be separately accounted for and held in the name of the specific series.
Before selecting a Series LLC as their preferred business entity, business owners should consider these unique characteristics and requirements. It’s crucial to evaluate whether the flexibility and liability protections of a Series LLC are beneficial and cost-effective for their specific business needs and to weigh these against the increased complexity in management and record-keeping.
Operating A Series Limited Liability Company – Advantages and Disadvantages
A Series Limited Liability Company (Series LLC) presents a unique set of advantages and disadvantages when compared to traditional partnerships, corporations, and LLCs. One of the main advantages of a Series LLC over these other forms of business entities is the ability to separate different business activities or assets into distinct series. Each series within a Series LLC is shielded from the liabilities of the other series, providing a level of asset protection not available in traditional partnerships or corporations. This structure allows business owners to undertake multiple, distinct lines of business or investments under a single entity, simplifying overall administration while retaining liability protection.
A Series LLC also offers the benefit of pass-through taxation, similar to a traditional LLC and partnerships, which avoids the potential for double taxation that can occur in corporations. Each series within a Series LLC can have its income and losses passed through to its members’ personal tax returns.
However, there are also significant disadvantages to consider. One of the main challenges of a Series LLC is its complexity. Each series must maintain separate books and records and adequately segregate its assets from the other series. This can lead to additional administrative work and costs, especially when compared to the simplicity of a traditional LLC or partnership.
Furthermore, the legal recognition of Series LLCs is not universal across all states, unlike traditional LLCs, partnerships, and corporations. Some states do not recognize the liability protection of individual series within a Series LLC, potentially putting assets at risk.
Finally, there is still a degree of legal uncertainty surrounding Series LLCs. They are a relatively new and evolving area of business law, and as a result, there is less legal precedent defining their operation and the limitations of their liability protections compared to more established business entities.
Organizing a Series Limited Liability Company In Illinois
To establish a Series Limited Liability Company (Series LLC) in Illinois under the Limited Liability Company Act (805 ILCS 180), a business owner must submit specific legal forms and generate essential legal documents for proper organization.
The first step in the formation of a Series LLC is the filing of Articles of Organization (using Form LLC 5.5(S)) with the Illinois Secretary of State. This document outlines basic details about the LLC, including its name, purpose, registered agent, and principal office address. Importantly, it must also state the intent to establish one or more series. There is a filing fee due upon submission of the Articles of Organization. Business owners should understand that even if the Series LLC’s name, and each of its subsidiary LLC’s, is available to register with the Illinois Secretary of State, this does not mean it is available for use under trademark law. Business owners are encouraged to conduct a search and clearance of all state and federal trademark databases to ensure the name is available for use before registering the medical corporation
In addition to the Articles of Organization, a Series LLC should create an Operating Agreement. Although not required by law, an Operating Agreement is crucial for establishing the rights, powers, and duties of each series, its members, and managers. It should clearly define how each series will be managed, the process for allocating profits and losses, procedures for adding or removing members, and provisions for dispute resolution.
Once the Series LLC is formed, separate series can be created within it. While Illinois does not require separate filing to create individual series, each series should be properly documented in the Operating Agreement or in separate series agreements to clearly establish its existence, assets, members, and business purpose. It is crucial to maintain clear records demonstrating that each series is separate and distinct, including its assets and liabilities.
The Series LLC must also apply for an Employer Identification Number (EIN) from the IRS for tax purposes. Depending on its activities and location, it may also need to obtain various business licenses or permits.
Contact Our Chicago Business Attorneys
Starting a business is a journey filled with both exciting opportunities and complex legal requirements. As you embark on this journey, we understand the importance of ensuring every step you take is sound, secure, and beneficial for your long-term success. We regularly assist individuals and organizations navigate the intricate process of business formation. Our team has an in-depth understanding of the various types of business entities — be it Limited Liability Companies, Corporations, Partnerships, or others.
Our legal services are comprehensive, ranging from advising on the appropriate business structure to meet your unique needs and goals, drafting organizational documents, ensuring compliance with state regulations, assisting with licensing requirements, and much more.