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Written by : Abby Delucia
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Thanks for your comment Scotty Pair, have a nice day.
- Abby Delucia, Staff Member
hi Clint Caruth Anderson business advisors and in this segment I'm going to cover series limited liability companies you know I've received quite a few emails over the past week about in from individuals wanting to know whether or not a series LLC is appropriate for their particular type of real estate investing and so I thought I do is I put together a few videos on using a series LLC for your real estate investing in this segment we're going to discuss what is a series LLC okay so the series LLC is a basically a limited liability company but it's designed to address a particular concern that many real estate investors have and that is the cost of setting up multiple LLC's think on this if you had several pieces of real estate you wanted to protect them you would most likely adopt the following scenario you would create several LLC's here and you'd put your properties in each of these LLC's now with this type of plan what we are doing is we're ensuring that if anything happens in any one of these boxes we've minimized our risk exposure to the greatest extent as possible so I could have a lawsuit right here this property comes under assault then the only risk I loss I have is what is associated to this LLC and if it's one property that's it they can't take any more so I could actually lose this limited liability company but all these other ones remain intact and I have asset protection now here's the rub the more LLC's you have the more costs you're going to incur on an annual basis to maintain them so if you're a setup in a state that has a $500 a year annual registration fee and you have three LLC's in my example right now then that's going to cost you fifteen hundred dollars a year to maintain this structure and then on top of that you have the initial setup costs as well that for each LLC that you set up if it was five hundred dollars and it's fifteen hundred I actually was two thousand you lost one it was two thousand dollars to put your plan in place now if you think about it though that's cheap insurance too be able to limit your liability exposure to that one box and not risk everything else I think most of you would say I would gladly pay $500 knowing that if the mother of all lawsuits came down because somebody was I don't know concerned about toxic mold and they make up a fictitious claim against me and the jury buys off on it that they can't take everything that I have because actually the example I just gave you insurance would not cover you however some states have looked at this and thought to themselves is there a better way can we make it so that the individual does not have to occur so many filing fees and if their primary purpose is to limit their liability exposure let's come up with a hybrid entity hence the series LLC the series LLC is designed to provide this level of asset protection without this cost okay what they're looking to do is minimize that so here's how a series LLC works well the series LLC what you're going to do is create a limited liability company but when you file it with the Secretary of State it will be filed as a series LLC now many times this will require that you custom draft your articles of organization some states do have pre-printed state approved forms that you can use to form your LLC other ones you're going to have to draft custom articles but a series LLC when it's incorporated what you're organized what you're doing is you're saying I'm creating this company here this LLC so it's just like a regular LLC but with one little addition and that addition is the ability to create what people will call cells or series now these additional cells or series they're designed to be treated as independent entities that is separate units from this parent company so the first one we'll call as the parent all right this one gets set up first and you would set it up possibly where you the manager here so this is you as a manager and then you're down here as the member okay now after that company is set up just like a traditional LLC would be set up then when it's time to acquire additional real estate and it's going back to my example again we're gonna buy four properties what you will do is create these cells so this would be series one and it would own this property right here then when you buy your second property you would create series number two right here and it would own this property and as you can see we come down here with number three just like that and then of course we'd throw number four on there as well and we've have our properties held accordingly now each of those documents that we're talking about here these separate series what's unique about the series LLC is that when you created that parent you had a full-blown operating agreement okay so it's you know 80 pages long and inside of the operating agreement it specifically authorizes you to create these additional series off of this operating agreement then when it's time to create your series like we've done here you don't have to file anything with the Secretary of State well not in all states in Illinois you'd would but I'll get into that in just a moment in order to create these separate series what you'll typically do is open our or prepare a two-page agreement and in that agreement what it states is the name of the series who's gonna manage it because you can have different managers with these series in fact you can have different members as well such as a series number three when I'm preparing that two-page agreement what I would list in there possibly if I was using a it was a joint venture maybe had some gap funds coming in from someone I might state on this one that 50 percent is owned by the parent LLC that's 50 percent and the other 50 percent here is owned by Jim all right so we're 50/50 members so you can actually have different members in these individual series that you're creating but that operating agree or that two-page agreement that I'm referring to that gets created every time you want to create a new cell those are internal documents no one's gonna know about them until you decide to disclose that information to third parties so there's no additional costs here so that is that is an advantage that people find attractive with the series is that when you set it up you don't have to make another state filing except in Illinois to create these series they can hold property they can conduct business and then should anything happen with an individual series like say number four has the mold problem then this is the only things that that is at risk everything else here is protected and the only only series you risk is that one number four now these two page operating agreements what they actually do the way this works is that they incorporate this 80 page agreement by reference so they say all right for purposes of running this Agreement refer back to the parent LLC operating agreement and that's going to govern the control in the operation of this individual series so there's quite a bit of legalese involved in this to make these work but the premise is that you can have separate distinct units that will prote
Thanks Rafael your participation is very much appreciated
- Abby Delucia
About the author
I've studied affine geometry at Huston-Tillotson University in Austin and I am an expert in systems philosophy. I usually feel giddy. My previous job was instructional coordinators I held this position for 30 years, I love talking about radio-controlled model collecting and listen to music. Huge fan of Melissa McCarthy I practice skimboarding and collect buttons.
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