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What Is the difference between a Series LLC & a
Restricted LLC?
Last updated Sunday, April 7, 2024
The relative
newness of the limited liability company business structure has allowed some
states to create innovative types of LLCs that offer unique business options
and special tax benefits. The series LLC and restricted LLC are among these
innovations. LLCs in general are formed under state law and combine the tax
benefits of a partnership with the limited liability of a corporation. Each
state has its own LLC statute that contains similar but not identical
provisions.
Series LLCs and
restricted LLCs are not available in every state. The series LLC was first
authorized in Delaware and is an option in only eight states: Nevada, Delaware,
Illinois, Iowa, Oklahoma, Tennessee, Texas and Utah. Restricted LLCs, on the
other hand, are a creation of Nevada law and are available only in that state.
An LLC in Nevada becomes restricted when it makes the election within its
articles of organization.
A series LLC is a
master LLC that oversees a series of separate legal groups. These groups can be
a series of members (also known as owners), managers, assets or interests. Each
series is essentially its own legal entity, with separate objectives, property
and liabilities. The separation can protect one series from the liability of
another, even though they all fall under the umbrella of the same LLC. In
contrast, a restricted LLC does not separate its members, managers or assets
into different groups.
A restricted LLC is
restricted in the way it can make distributions, while a series LLC does not
have any restrictions. Distributions are periodic payments of a portion of an
LLC's profits, made to its members. The amount that an LLC can distribute is limited
by state law. A restricted LLC can't make any distributions to its members
until it has existed for 10 years. This restriction is designed to give members
favorable tax treatment. Under federal tax law, if an interest in an LLC is
gifted from one family member to another, the interest must be taxed even if it
can't yet be converted to cash. However, the Internal Revenue Service has a
stipulation that if state law prevents the interest from being liquidated, then
that interest cannot be taxed. Thus, any restricted LLC interest that is gifted
between family members can be tax free for a period of time.
A series LLC is
structured to limit liability even more than regular LLCs do. Regular LLCs
protect their owners from being liable for actions made by the LLC. A series
LLC goes further by protecting each individual series from the liability of the
other series under the master LLC. A creditor, for example, can only go after
the assets of the series it works with and not the other series that are under
the same LLC.
Nevada
Commercial Registered Agent
Entity # E0502742015-6
NV Business ID NV20151637034
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© 2024 Marc Gohres
Revised April 7, 2024 10:24 AM
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