How to Start a Business in Illinois Illinois Registered Agent How to Start an LLC in Illinois

How to Create a Series LLC in Illinois

What Is a Series LLC?

A Series LLC is a unique form of a limited liability company that allows for the creation of multiple, distinct series within a single LLC. Each series operates independently, with its own assets, liabilities, and members. This structure allows for the segregation of assets and liabilities among different series, providing liability protection for each series from the debts and obligations of the others.

Does Illinois Allow Series LLCs?

Yes, Illinois permits the formation of Series LLCs under the Illinois Limited Liability Company Act. The relevant statute is 805 ILCS 180/37-40, which outlines the requirements and provisions for establishing a Series LLC in the state. Special language authorizing the creation of series must be included in the formation documents.

How a Illinois Series LLC Works

In an Illinois Series LLC, the master LLC acts as the umbrella entity, under which individual series are created. Each series can have its own members, assets, and liabilities, and is treated as a separate entity for liability purposes. This separation requires meticulous recordkeeping to ensure that the assets and liabilities of each series remain distinct.

Benefits of Forming a Series LLC in Illinois

Cost Efficiency: Forming a Series LLC can be more cost-effective than creating multiple separate LLCs, as it allows for the consolidation of administrative tasks and fees.
Asset Segregation: Each series can hold its own assets and liabilities, protecting them from the risks associated with other series.
Administrative Flexibility: The structure allows for easy addition or removal of series without the need to form new LLCs.

Limitations and Risks of a Illinois Series LLC

Legal Uncertainty: The Series LLC structure is not universally recognized, which may lead to legal challenges in jurisdictions outside Illinois.
Banking and Lending Challenges: Some financial institutions may be unfamiliar with Series LLCs, complicating banking and lending processes.
Tax Complexity: Managing tax compliance for multiple series can be complex and may require specialized accounting services.

Who Should Consider a Illinois Series LLC?

A Series LLC is ideal for businesses with distinct operations or assets that require separation, such as real estate investment companies, asset holding entities, or intellectual property management firms. However, for businesses with simpler structures, a traditional LLC may be more appropriate.

Step-by-Step: How to Create a Series LLC in Illinois

Step 1: Choose a Name for the Series LLC

The name of the Series LLC must comply with Illinois naming requirements, including the use of "Limited Liability Company" or abbreviations like "LLC." Each series within the LLC should have a unique name that includes the name of the parent LLC.

Step 2: Appoint a Illinois Registered Agent

A registered agent must be appointed for the Series LLC. This agent must be a resident of Illinois or a business entity authorized to do business in the state, responsible for receiving legal documents on behalf of the LLC.

Step 3: File the Certificate of Formation

The Certificate of Formation must be filed with the Illinois Secretary of State. This document includes the LLC's name, address, registered agent information, and management structure. Filing can be done online or by mail.

Step 4: Include Series LLC Language

The Certificate of Formation must explicitly state that the LLC is authorized to establish series. Failure to include this language may result in the inability to form series under the LLC.

Step 5: Draft a Series-Compliant Operating Agreement

An operating agreement is crucial for internal governance and should outline the management, asset, and liability separation for each series. This document is not filed with the state but is essential for legal and operational clarity.

Step 6: Establish Individual Series

Individual series are created internally by the LLC, and each series should maintain separate records and accounts to ensure liability protection.

Step 7: Obtain EINs (Parent and Series, If Needed)

An Employer Identification Number (EIN) is required for the parent LLC and may be necessary for each series, depending on their operations and tax requirements.

Step 8: Open Separate Bank Accounts

Each series should have its own bank account to prevent commingling of funds, which is crucial for maintaining liability protection.

Step 9: Comply With Illinois Tax Requirements

The Series LLC must comply with Illinois tax obligations, including state income tax and any applicable sales tax. Each series may have separate reporting and payment responsibilities.

Illinois Series LLC Filing Fees and Costs

The filing fee to form a Series LLC in Illinois is $400, which covers the master LLC at the time of formation. Additional fees apply if individual series are created after formation, and the Series LLC is also subject to ongoing annual reporting requirements.

Illinois Franchise Tax and Series LLCs

Illinois does not impose a franchise tax on Series LLCs. However, each series may be subject to state income tax and must comply with reporting obligations.

Ongoing Compliance Requirements for Illinois Series LLCs

Series LLCs in Illinois must file an annual report with the Secretary of State and maintain accurate records for each series to ensure compliance with state laws.

Common Mistakes When Forming a Series LLC in Illinois

Missing Required Series Language: Failing to include series authorization language in the formation documents can prevent the creation of series.
Poor Recordkeeping: Inadequate separation of records and accounts can jeopardize liability protection.
Mixing Assets Between Series: Commingling assets can lead to liability exposure across series.

Series LLC vs Traditional LLC in Illinois

A Series LLC offers a flexible structure for businesses with multiple operations or assets, while a traditional LLC is simpler and may be more suitable for single-operation businesses. The choice depends on the complexity and needs of the business.

Additional Resources

This article provides general information about Illinois LLC formation requirements under the Illinois Limited Liability Company Act. It is not intended as legal advice. Persons forming an LLC should consult with a private attorney regarding their specific circumstances.