2. Series LLCs Have Reduced Startup Costs
Real estate investors often choose Series LLCs because this business structure streamlines the organizational process that is required by state and federal agencies. Series LLCs only require one Registered Agent , which can be a nice savings. Overall, a Series LLC, and any additional cell LLCs that operate and are added under the umbrella company, will cost you much less than forming multiple LLCs. (Of course, if you operate in multiple states, you will need to pay additional Registered Agent fees in each state where you do business.)
3. It Provides More Liability Protection
Many real estate investors might think they don’t need a Series LLC because they can just buy liability insurance to protect themselves from lawsuits. This is a mistake. Getting liability insurance is often a good idea, but you shouldn’t assume that liability insurance will protect you from all the risks and headaches associated with bad tenants or declining investments (especially when you consider the limitations on protection that many insurance policies contain).
For example, let's assume that you are not structured as a Series LLC and an unhappy tenant decides to sue you claiming there is a mold problem. Now your headache and legal problem just got worse since mold claims aren’t covered under your liability insurance.
By not being structured as a Series LLC, and relying only on liability insurance, not only could you lose out on the assets of the property in question, but your other investments could fall prey to this lawsuit because you didn’t separate them using the umbrella model of a Series LLC.
4. Reduced Administration and Paperwork
Establishing a Series LLC means less paperwork. You only need to register with the state once, instead of multiple times for each LLC. You only need one Operating Agreement, and you'll only submit and pay one annual report fee. This can save you a lot of money and time.
Series LLC documents can be just a few pages and can simply state the series name, the managing party and the members for that particular property or series. Governing of the subsidiary LLCs will fall on the original Operating Agreement that was established and filed for the parent company. This will save you the time and effort of making separate filings for each entity and will, as well as all the filling and future renewal costs.
5. Series LLCs Can Lessen Risk
Real estate investors are often advised to separate their holdings for one very simple reason: doing so can lessen the risk of any one property affecting the others due to a lawsuit, bankruptcy or other unexpected liability issues.
With a Series LLC, each individual real estate LLC under the parent company has the same protections that regular LLCs have. This can be a lifesaver, especially if you take into account the example earlier where the tenant from one of your properties decides to sue you due to mold. If you do not have a Series LLC (i.e., you have all your real estate holdings operating with one bank account as the same company), then any profits or cash used for those other properties could be at risk if that lawsuit goes in your tenant’s favor.
However, keep in mind that a Series LLC is not a magical shield. In order to maintain the protections for each LLC, be sure you understand the rules in your state and follow the guidelines for maintaining your Series LLC status.
6. Opportunity to Own More Than One Property
By setting up a Series LLC, you will have the ability to build on your portfolio of properties by adding more cells, at any time, with each being treated as separate units from the umbrella LLC. This all falls under the original Operating Agreement created when the parent LLC was first formed. And as a reminder, each series can even have a different manager and different members.
Choosing a Series LLCs for Your Real Estate Businesses
The business organizational structure of a Series LLC will only work if you are establishing this type of entity in a state where it is recognized and plan on owning multiple business properties within that state. If you decide to expand into another state, especially a state that does not recognize Series LLC formations, you will need to begin the LLC formation process within the new state.
The Series LLC is still not available in every U.S. state, and it isn’t going to be the right solution for all real estate investors. However, a Series LLC might be a good option to reduce your risk and improve the efficiency of your business operations.
When deciding which form of LLC is best for your real estate holdings, it’s also a good idea to discuss your options with a lawyer and/or CPA who has experience in real estate investments. With online LLC formation services like the one that Bizee provides, you can set up your parent LLC with ease.
