The Series LLC is Coming to Ohio
The Series LLC brings changes investors and business owners will want to know about.
Do you hold your investments in multiple LLCs to protect assets and access tax benefits? Ohio’s adoption of S.B. 276 brings exciting news to investors throughout the state.
This new legislation replaces the current Ohio LLC Act with the Ohio Revised Limited Liability Company Act (“ORLLCA”) Effective February 11, 2022. The LLC landscape as we know it will experience some interesting changes with several benefits for business owners and investors. Below, we’ll give you a jump on these changes with a simple explanation.
The Series LLC
Investors in Ohio are well aware of how complex it can be to protect assets. ORLLCA addresses this head on. Let’s talk about the Series LLC.
Series LLCs make it simple to reduce shared liability among multiple properties or other assets. They offer all the benefits of the traditional LLC, but the Series LLC starts as a “Parent” Company.
This “Parent”, or general company, is allowed to have “Children” or multiple sub-series which serve as sub-LLCs used to separate assets in silos. If one of the sub-series gets sued, the assets held by the other “Children” and the “Parent” are protected from any liability. You get the same asset protection that comes with a plan using multiple, traditional LLCs. The difference is you only opened one.
When you establish a Series LLC in Ohio, it will be registered with the Secretary of State as a legal entity. The difference will be found in your operating agreement. Special provisions will give you the authority to add a series whenever needed. Think of it as having LLCs inside your LLC. In terms of asset protection, this is a major benefit to investors.
Tax and Costs Benefits
Series LLCs also bring cost and tax benefits. Let’s say you’re using the current asset protection strategy of setting up multiple traditional LLCs. This strategy requires you to pay registration fees for each LLC.
With a Series LLC the general company is charged with registration fees, but each associated sub-series does not have a fee. This can potentially save investors thousands as portfolios grow.
Tax preparation for multiple traditional LLCs can be a costly nightmare. Try keeping up with 20 EINs. With a Series LLC there is only one EIN for the general company. Each connected sub-series is listed on a single tax return. This cuts down on the time and expenses associated with tax preparation.
The Series LLC also holds the potential to avoid filing Commercial Activity Tax (C.A.T.) in Ohio. If a sub-series reaches $150,000 in annual gross receipts it will appear as a separate taxpayer and be subject to C.A.T.
Forming a Series LLC in Ohio
The process for forming a Series LLC in Ohio is somewhat different than that of a traditional LLC. Working with your business attorney, follow these 3 steps to formation:
Enter special provisions into the operating agreement that establish:
Separate rights, powers, or duties regarding specified property or obligations of the LLC
or the profits and losses related to specified property or obligations; AND/OR
A separate purpose or investment, and at least one member associated with each
series.
A statement that the LLC may have multiple sub-series of assets in the articles of organization.
Separate record keeping for each sub-series and its assets.
It would be wise to include a separate operating agreement for each sub-series that refers to the operating agreement of the general company, identifies the member(s) of that specific sub-series, and speaks to the purpose of that sub-series.
The articles of organization must make a statement authorizing the use of one or more sub-series. Investors and business owners must be very particular about maintaining separate bookkeeping for the financials of each sub-series. Mixing funds from one sub-series to another could risk the liability protection between sub-series, and the company in general.
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How the Series LLC is Governed
The Ohio LLC Act grants specific rights and powers to the Series LLC. According to the Act, the Series LLC is afforded the following governance:
1. Powers
Sue and be sued;
Contract;
Hold and transfer title to assets of the company and general and each sub-series; and
Grant liens and security interests in assets of the company in general and each sub-
series.
2. Distribution Rights
a. Distributions can only be made to those members (owners) associated with a particular sub-series.
3. Membership Rights
One member (owner) must be associated with every sub-series within the company in general. If the company has multiple members, a member may be associated with only one sub-series, or every sub-series (except for the member chosen to be associated with each sub-series).
The Ohio LLC Act governs the Series LLC in several other ways. This includes the liabilities, assets, and management. Click here to see all of the upcoming changes.
Conclusion
The Series LLC will be a major change for Ohio business owners and Real Estate Investors who are looking to protect their assets. With a Series LLC, the strong asset protection gained through setting up multiple traditional LLCs can be achieved through one filing with the Secretary of State. This saves time, money, and confusion that comes with the traditional method. Investors can reap tax and cost benefits and shield assets from liability by following requirements within the statute. Consult a business attorney to assure your Series LLC is properly formed and in compliance with the requirements.
Disclaimer
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