FAQ

Q. Can I use a regular LLC Operating Agreement for a Series LLC?

A. No – unlike a more traditional LLC Operating Agreement, a Series LLC Operating Agreement should specifically provide for the establishment of various Series with differing members, differing assets, and separate liabilities, with separate “sharing ratios” with respect to the percentages in which the members of a particular series participate and share in certain items, such as the allocation of Net Profits and Net Losses. The Series LLC Operating Agreement could also provide that a member of a particular Series may be a member of another series. It could further provide for the creation of additional LLC interests and the assignment or disposition of existing series LLC interests. Most importantly, the Series Operating Agreement should make clear that each LLC Series will own separate assets, have separate rights and powers as set forth in the Operating Agreement, and have separate investment or business purposes. Please seek the advice of an accountant for further guidance.

Q . Is Available Cash for purposes of distributing cash calculated at the LLC or Series level?

A. In order to keep the business of all the Series separate and distinct, Available Cash should be distributed separately at both the Series and LLC level, especially when the Series and the

LLC have different members. Please seek advice of an accountant for further guidance.

Q . Can a Series have a separate fiscal year than the LLC for tax purposes?

A. It is generally believed to be possible for a Series and the LLC to have different fiscal years. However, the Internal Revenue Service has not yet provided any guidance on this issue. If the Internal Revenue Service were to hold that each Series is a separate entity for tax purposes, then each Series would likely be required to file its own tax return, distribute Schedule K-1s to members of the particular Series, and have its own tax identification number.

If the IRS were to hold that each Series is a separate entity for tax purposes then: (i) a transfer between two Series would be treated as a transaction between separate entities with tax consequences rather than as an internal transfer, (ii) the entity classification rules would likely apply separately to each Series, such that a particular Series could be classified as a partnership, another as a corporations, and another as a disregarded entity, and (iii) each Series would separately be likely to engage in reorganization transactions.

Q . Are the net profits/losses calculated at the LLC level and then allocated to each Series or are they calculated separately for each Series at the Series level?

A . In general, Net Profits and Net Losses should be allocated separately for each Series. The LLC Operating Agreement could specifically provide for the establishment of various Series with differing members, differing assets, and separate liabilities, with separate “sharing ratios” with respect to the percentages in which the members of a particular series participate and share in certain items, such as the allocation of Net Profits and Net Losses. Please seek the advice of an accountant for further guidance.

Q . How will a Series LLC be classified of federal and state income tax purposes?

A . In general, if each Series is treated separately for federal tax purposes, the federal entity classification rules presumably would apply to each Series. Thus, by default, a multi-member Series LLC would be classified as a partnership and a single-member Series LLC would be disregarded for federal income tax purposes, and any such Series could elect to be classified as a corporation. In a structure in which the Series LLC is the sole member of each Series, the entire LLC (including all LLC series) would be treated as a single entity for federal tax purposes. For state tax law purposes, the tax classification of entities typically follows the entity’s classification for federal income tax purposes. Because the Internal Revenue Service has not yet ruled on the tax classification of Series LLCs, the classification of these entities is still unsettled. While the Internal Revenue Service has not yet ruled on the status of Series LLCs, California’s Franchise Tax Board has taken the position that each Series in a Delaware Series LLC is a separate business entity for state income and franchise tax purposes, and each must qualify in California if it transacts business in California.

Q. Can a Series LLC employ someone?

A. Most likely yes. Even if the Internal Revenue Service considers all of the Series in a Series LLC part of a single entity, it should allow each Series to obtain a separate employer identification number. After all, a single-member LLC may currently obtain a separate employer identification number even if it is disregarded for tax purposes. Likewise, each Series should be able to obtain a separate employer identification number even if not considered a separate entity for tax purposes.

Q. Should the members make capital contributions directly to the LLC on behalf of a Series or should the capital contributions be made to the particular Series directly?

A . Capital Contributions should generally be made to the particular LLC Series directly. Please seek advice of an accountant for further guidance.

Q. Should the LLC manager keep separate bank accounts for each LLC Series?

A. Yes. Separate bank accounts should be maintained for each Series.

Q. Will the dissolution of the LLC dissolve all the LLC Series?

A. Yes – the dissolution of the LLC will dissolve all of the LLC’s Series

Q. Will the dissolution of a particular LLC Series dissolve the other LLC Series?

Terms & Conditions		Privacy Policy
Self Directed IRA | Solo 401K | Self Directed IRA Real Estate | Self Directed 401K | Individual 401K