Benefits of the Illinois Series LLC
In Illinois, there are two kinds of LLCs: the traditional LLC model, which we’ve discussed at length in previous articles, and something called a Series LLC. Illinois is one of the only a few states that allows LLCs to establish a series, so let’s dive in!
What is a Series LLC?
First, let’s establish the baseline. With a traditional LLC, the members are shielded from the company’s liabilities through the creation of the corporate entity. However, all of the assets owned by that LLC are essentially held in one pot. So if one part of the LLC’s business owes a debt, all the rest of the business assets become vulnerable to that liability. A Series LLC, by contrast, is a regular LLC with the ability to separate itself into cells with separate interests, liabilities, and members. By creating these cells, each segment of the LLC is shielded from the others’ debts.
Most commonly, a Series LLC is used for real estate LLCs that own multiple properties. For example, if an LLC owns more than one rental property, each could be vulnerable to its own set of liabilities. By segmenting the LLC, each cell of the business owns only one property, and each is shielded from the liabilities of the others.
How do You Create a Series LLC?
Creating a Series LLC is very similar to creating a traditional LLC in Illinois. Instead of filing the Articles of Organization on Form LLC-5.5, however, you would file Form LLC-5.5(S). After the Articles of Organization have been filed, you can then file a Certificate of Designation (Form LLC-37.40) for each series.
What are the Benefits of Creating a Series LLC?
The obvious benefit of creating a Series LLC is the segmented liability protection. However, what is the difference between creating a Series LLC and simply registering totally separate LLCs for each property you own (in the case of a real estate company)? Basically, it comes down to money.
Traditional LLCs used to cost $500 to set up and an additional $250 per year to maintain compliance. If you need to register multiple LLCs to protect each individual property your company owns, these fees could really add up. Series LLCs, on the other hand, used to cost $750 to set up and $50 to add each additional series. Similarly, for annual compliance filings, Series LLCs only need to pay the $250 fee once, with $50 for each series. If you are planning on segmenting a number of series, this could add up to a huge financial savings.
However, in December 2017, Illinois passed a law reducing LLC filing fees across the board. Traditional LLC set up costs are now $150 and the annual compliance fee is only $75. For the Series LLC, the initial set up cost is $400 and the annual report for each series remains at $50. This reduction in savings helps start-ups, but be sure to calculate whether you will receive any cost savings if you start a Series LLC for only 1 or 2 businesses.
Thinking about Using a Series LLC in Your Business?
If you would like to learn more about Series LLCs or need help creating one, click here to jump on my schedule. I would be happy to talk through your options with you and help you make the best decision for your business.