In our previous blog post, we discussed the power of the LLC. This business entity is known for being one of the most flexible business structures among business owners. To reiterate some of the information shared regarding this business structure, an LLC or a limited liability company is an entity that has the qualities of a corporation and benefits of sole proprietorship. The key component of this type of business structure is the liability protections that it affords its members and other agents operating under the business. In this blog post, we will discuss another business structure gaining traction in the business world – the series llc. The liability protections are the same, the difference is this structure allows you create other business ventures under your LLC, without any additional filing fees or formation documents. .

A series LLC is a business structure that is controlled by a principal or master LLC (parent company). under this major LLC are other LLC business structures called series. This is a more condensed definition that is much easier to understand for the purpose of informing individuals who are pursuing certain business structures, such as a Series LLC.  However, even after you read this blog, we encourage you to hire a knowledgeable business attorney to assist you with forming your company.

LLC vs Series LLC

As you may already know, there are differences between an LLC and a series LLC. When you are comparing and contrasting these two distinct business structures, a prospective business owner must decide which of these entities will benefit the future success of his or her business, and also how this certain business structure will benefit an owner in personal ways. When it comes to comparing these structures, what is similar is the personal liability protections that are given to them. Having a liability protections is what makes the limited liability business structure so attractive to many business owners. The last thing you would like as a business owner is a lawsuit on your hands. As we have previously discussed in other blogs, having the possibility of being sued is perhaps the most unfortunate and inconvenient of circumstances. Having this problem on your shoulders can interfere with your everyday business activities and can also have a profound personal effect on your estate. Thankfully, both of these business structures have these essential liability protections.

What makes the LLC and series LLC different from each other is the ability to separate your assets (and liabilities) from each venture operating under the parent company. For example, if you are a business owner who is in charge of certain commercial properties, and if you are sued for endangering the safety of clientele for example, then the possibility of these assets to be at risk dramatically increases. This is especially true if all assets are under one LLC. Remember, you the owner, won’t held responsible (granted the incident isn’t related o fraud or misuse of funds). The LLC will. Therefore, those business assets can be at risk. Here is where the power of the series LLC comes. You can create a series LLC, and under the principal LLC, you can separate each asset. If you are sued, individuals or other entities can only go after the assets of that particular commercial property that caused them harm. The other properties, or assets, are their own LLC. Therefore, the other assets are protected from a lawsuit.

Holding Company vs Series LLC

A holding company and a series LLC both are structures that are popular due to the ability to protect and separate assets. For corporations, it has been the go-to choice. There is a certain disadvantage that might change the perspective of many future business owners. Although a holding company has the benefit of separating and protecting assets, the separations aspect of a holding company can become complicated. Let us explain: A holding company is created by establishing a parent company, and below the parent company, you will have its subsidiaries. These subsidiaries are completely separate legal entities that are owned, not by the parent company in many cases, but other entities as well. The holding company structure is traditionally maintained through the creation of separate business structures, such as other LLCs and corporations. This means a lot of paperwork! In order to operate under a successful holding business structure, you must make sure that all administration and operation duties where followed thoroughly. Because all entities were separate from each other, they had to require separate administrative duties. This can become a bigger hassle if there are international business operations. Holding companies take seriously the aspect of separations of assets. When it comes to the series LLC, the administrative duties are, fortunately, more manageable to perform.

Who might consider forming a Series LLC?

Let’s provide a quick example that illustrates how impactful a series LLC can be.

Michael has recently established a series LLC business. He now owns 4 homes. How did he decide to establish a series LLC? A business law attorney gave him the guidance he needed to come to the conclusion that he needed to establish a series LLC. See, Michael had an associate that experienced the loss of his assets, and that included 2 rental properties. A renter and his family experienced physical injury when it was discovered that air filters were not working properly and were not up to date. Their physical injuries came in the form of breathing problems. This renter sued Michael’s associate, and because his associate had both of his rental properties under one LLC business, Michael’s associated assets were gone. His business assets were gone because of the severity of the damages that were inflicted on the tenants.

This means the two properties that Michael’s associate had to be sold in order to follow through the financial compensation that was ordered because of the lawsuit. Michael did not want to experience this. His attorney recommended him to create a series LLC, where his 4 homes will be separate LLCs. Michael decides to place his 4 homes in the market as properties for rent. Because his commercial business is a series LLC, he will not worry about experiencing the same fate that his associate had. He will also make sure to follow all regulations that are needed to be met in order to avoid any potential lawsuits. Even if there is a possibility of a tenant suing him, the tenant can only go after the property in which the damage was created. Michael was thinking about creating a series LLC business, but he needed the advice of an attorney to confirm that he was right in creating this business structure.

Benefits

The benefits of establishing a series LLC have an incredible impact on the business and its owner. As we have discussed in this blog, one of the benefits of having a series LLC includes a more manageable administration of a business. It is less complex than to operate a corporation or any other similar business structure such as a subsidiary. We know how important it is to have a manageable administration. It saves business owners time and operating costs in the long run. Speaking of operating costs, it can save on your investment expenses when establishing this structure. Establishing a series LLC has a reduced startup cost in comparison to other structures. Perhaps the most important benefit in creating a series LLC is the protection and separation of assets. If you are sued, individuals or other entities can not go after your assets that belong to other cells of your series LLC. In a regular LLC, you may have to create other separate LLCs to have the same benefits, but that means you will have different tax returns, different financial accounts, and extra administrative work. Regarding taxation, another benefit of creating a series LLC is that the principal LLC is only required to provide a tax return, and that includes your LLCs from other cells. We understand that dealing with taxation responsibilities can be a daunting task. To ensure that you are taking responsibility of your taxation needs, consult with a professional that has series LLC business tax expertise.

Drawbacks

Although a business owner can file one single tax return under the principal LLC, there must be separate accounting for each different cell that is part of the series. That is why it is very important for a business owner to consult with a tax professional that has a significant amount of experience in administering series LLC tax returns. Having multiple cells can mean many hours spent in making sure you have the most accurate financial statements to help you have an accurate tax return. Another drawback that should be discussed regarding this business structure is that it may be difficult to create a series LLC if your state does not allow for prospective business owners to create this structure. The states that do allow for such business structures to be established include Delaware, Illinois, Montana, Nevada, and Texas. Your series LLC business can provide services to clients/customers from other states, but if a state does not allow for individuals to create a series LLC, an incredibly high operating charge can be placed on the series LLC business owner from a different state. Lastly, the topic of bankruptcy comes into play. Many courts may not know how to establish certain proceedings when dealing with multiple LLCs because of how new the series LLC structure is. This can result in the courts not being able to understand how to manage each and every individual LLC that is part of the overall series LLC. A court must understand this business structure in order to provide a positive outcome for the individual or entity that is seeking bankruptcy relief.

Forming a Series LLC in Texas

According to Texas law, a series LLC is defined as an LLC entity that states in its governing documents that managers, members, assets, and membership interests have rights, liabilities and other privileges that are separate from the principal LLC. Certain privileges that traditional LLC has can be also found within a series LLC structure. These include the ability of joining a contract, sue a company or an individual but also be sued, take control of a title, give assets interests or liens. If you would like to form a series LLC in the state of Texas, the law states that you should consult with an attorney. We highly recommend that you seek legal counsel that has the expertise and the knowledge necessary to help you establish this form of business structure. The Secretary of State does not specify a certain certificate of formation. Certain series of LLCs are permitted to use specialized names, structures, and assets through a single filing. Under Texas law, specifically, the Texas Comptroller will treat a series LLC as a single entity. You will have to register your business with the Secretary of State as a single entity but you will only need to file with this office once. An annual fee must be paid to a registered agent if you wish to operate your series LLC in Texas.

Next Steps…

If you are looking for a business structure that gives you the ability to have multiple assets under one single organization then consider forming a series LLC. This structure is perfect for business owners who have multiple business dealings and ventures. Business owners that have multiple enterprises may face different obstacles that other business owners that only operate one enterprise. For the business owners that have just one business, it is already a challenge to manage employees, administration duties such as legal and accounting, as well as everyday operating responsibilities. For a business owner that has multiple enterprises, this challenge can increase. It takes an incredible ability, personality and intellect to be able to have a variety of businesses. You may think that you can administer all of your businesses, like in the case of other business owners of this nature, but there is an easier way. For those who are embarking on multiple business ventures, consider establishing a series LLC. You will gain liability protection not only for yourself, but it will protect your other business ventures in a way that will help you gain peace of mind.

If you are looking to establish a series LLC, we would like for you to speak to one of our representatives from the Law Office of Yates and Associates. We will discuss in further detail and establish whether you should choose to create this form of business structure. Contact us to get started in your journey in becoming a business owner. 

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Who should consider an LLC?

Let’s provide you with a scenario that is very common among future business owners: Michelle recently graduated from a massage therapy program. Although she received multiple job offers upon graduating, she has decided to open her own business. She believes that opening her own company will provide her with significant financial independence. Here is the thing: She is not doing it alone. Two of her fellow massage therapy friends from school wanted to find success on their own terms as well. Michelle and her two associates decided that opening a business was the best way to obtain the success they have always wanted. They needed to choose whether they want to open a general partnership or an LLC. They discussed in great detail their concerns about opening a business that involved multiple people. Michelle then later remembered that one of her family members was affected by certain business dealings that affected not only his overall business but his personal assets as well. He had to give up some of his personal assets in order to compensate stakeholders due to a lawsuit. Michelle certainly did not want to face what her relative experienced. Coincidently, Michelle’s two friends also had similar experiences with family members regarding business matters. They also knew that the services they provide as massage therapists could make them more vulnerable to certain liabilities. They concluded that forming an LLC was the best route for them to take.

If you are opening a business that has multiple partners and if you are going to create a business that can potentially be more susceptible to lawsuits, consider forming an LLC. Below are some of the benefits and misconceptions about an LLC:

Benefits

Business Structure and Separation

As stated before, one of the most essential benefits of opening an LLC business is the separation of business assets and personal assets. If any entity sues, then the only assets that a certain individual, business, or any other organization can go after are the assets of the business. Also, the business structure itself is so popular to form because it offers incredible flexibility to the point where you can make your own rules and create your own operating agreements. It is easy to establish and does not require as much paperwork as other entities such as corporations, which makes an LLC more affordable and easier to operate.

Personal Protection

There is a reason why LLC stands for a limited liability company. Any financial or legal mistakes that any of the other members of a company creates that causes a lawsuit will not fall on your hands. They are responsible for their own actions. Although you may be a part of the business, any of the assets that entities will try to obtain are only business based. What that means is your personal assets such as your investment, retirement, and savings accounts will be left intact. This will certainly provide you with much-needed peace of mind. Also, if you will like to protect your personal assets even further, you can create an LLC to protect your estate. An LLC for your estate will protect you from creditors, lawyers and costs that may come about, such as costs related to court procedures.

Credibility

There is a certain amount of credibility that LLC can bring to your business. Many individuals will see that you are an established business entity that will serve the needs of customers, employees and other important stakeholders. The best way you can add credibility to your organization is by incorporating the LLC abbreviation in your business name. This will create a positive impression on the audiences and other important entities that you are trying to reach. In Texas, it is required to have the LLC abbreviation in the name of your company.

Tax Benefits

Taxes are a part of any business entity. There is a difference when it comes to an LLC. When you establish an LLC, an important tax benefit includes being taxed just once. When you file your individual tax returns, you can report your business profits on this single tax form. This is known as pass-through taxation. When you establish other business entities such as a corporation, you won’t be able to avoid double taxation. This means the profits of the corporation are taxed prior being provided to the owners of this business entity. Once owners file individual taxes, these profits will also be taxed once more.

Misconceptions

No employees?

Because having an LLC business brings many legal protections based on liability, it does not mean that this business structure is meant for everybody. An LLC is beneficial if you have multiple members. If you are the sole employee and business owner, is it is much more cost effective to create a different form of business such as a sole proprietorship. You will save so much more in formation fees and registration fees that have to spend in order to maintain your LLC status.

Limited Liabilities, not No Liabilities

Limited liability does not mean total protection. The protections that are offered by this business apply when you and other members of the business have certain mishaps regarding investments. If you or other members of the LLC committed an inappropriate action such as misuse of funds and fraud, you will not be protected under limited liability and will be completely liable for these acts.

Forming an LLC in Texas

If you are considering forming an LLC business structure in the state of Texas there are certain steps that must be made. Thankfully, it is a fairly simple process. Although this may be the case, you must follow these steps accurately and in an orderly way in order to avoid any concerns that may arise. These steps and actions that are required on your part include creating and choosing a name for your business. In Texas, you must include “LLC” in the name of the business. You will also need to file a Certificate of Formation, also known as Form 205. The fee for this file is $300 if you are a for-profit company. You will also need to name a registered agent in order for the individual or entity to receive important correspondence such as tax information, lawsuits, pertinent information from the Secretary of State offices, and other significant correspondence that involves your business. Other important actions include obtaining an Employment Identification Number from the IRS, EIN for short, as well as creating an operating agreement. For more information on forming an LLC, speak to one of our representatives from the Law Office of Yates and Associates.

PLLC (Professional LLC)

An LLC is not so different from a PLLC. They both enjoy the tax benefits and personal asset protections, as well as liability protections regarding the investments that members contributed to the company. The key difference is that only certain individuals can create a PLLC. These individuals must be professionals. Each state has its own definition of what a professional is. In Texas, the list of professionals that can create a PLLC include lawyers, doctors, veterinarians, accountants, and architects. Creating a PLLC does not mean that any of these professionals are not liable for their own malpractice. It does, however, in most instances, protect individuals from the liabilities of the other professional members of the business. Although this is a great benefit to have, it is recommended that professionals obtain malpractice insurance in order to obtain the most protection possible if certain legal actions come about. This will help professionals perform their duties with ease. These professions come with a certain level of prestige. These professionals obtain such prestige because they are able to create a lasting effect on members of society. Each of these professionals carry an immense responsibility because of their significant influence. Any mistake, even if the certain professional was not responsible, can create a negative effect. Thanks to a PLLC, these individuals can obtain a level of comfort and protection from liabilities that can impact their careers in more ways that one.

In Short

Running a business is no easy task. There are many entities that you have to be concerned about. These include employees, customers, investors, and other businesses. All of these entities play a significant role in the success of a business. Each and every day, business owners are concerned with the daily operations of a business, and they must be able to remain in a positive state in order to fully be able to tackle any issues that may arise in any given day. These immense responsibilities can create a certain level of stress. This level of stress can intensity if certain things go wrong. Perhaps a customer is unhappy with the service or product or certain investor relations go sour. This can open up to potential lawsuits. As we have mentioned, the stress that lawsuits can bring can be exhausting. This added stress can potentially have a negative effect on your business and your personal well being. Thanks to LLC and PLLC organizations, you are able to reduce the possibilities of being held responsible for certain liabilities, while enjoying other benefits that can create important savings for you and your business. In our next post, we’ll discuss the benefits of another significant LLC entity, the Series LLC. This LLC involves one main LLC and other multiple LLCs that act as separate identities, so stay alert for this blog. You may find that creating a Series LLC will provide exceptional benefits as a business owner. 

Ready to Get Started?

If you are considering opening a business, and would like to obtain the most financial and legal liability protections that you possibly can, consider forming an LLC or PLLC. The professionals at the Law Office of Yates and Associates can certainly help you decide if opening an LLC or PLLC is the right one to make. To speak to one of our associates regarding this business structure, simply click here to get started.

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Although they are facing certain obstacles, many are looking for ways to create long-term financial opportunities for themselves and their families. The millennial age group, or any other age group that was affected by an economic downturn for that matter, are turning to entrepreneurship to combat their financial difficulties. Becoming a business owner can provide many opportunities for those who are prepared to enter desired markets. Job security and stability are the most prized benefits that one can obtain through entrepreneurship. There are many forms of businesses that individuals can choose from, but they must do so wisely.

Below are the most prominent business entities that persons can form.

The Basics

Sole Proprietorship:

A sole proprietorship is an entity that is operated and controlled, in most cases, by one individual. This person oversees the entire enterprise.

Advantages

• This type of business is simple to establish.
• The individual has complete control of the business.
• Tax payments are not as vast as other forms of business.

Disadvantages:

• The individual in charge is entirely liable for debts and financial duties of the business.
• Investors may not be willing to invest in this type of business as others.

General Partnership:

A general partnership is an entity that is operated and controlled by two or more individuals. These individuals are responsible for the function and success of the business. Each of these individuals contributes to the success of this form of business through specific skills sets, financial investments, as well as labor.

Advantages:

• The taxes that come with operating this form of business can go through each partner. The profits and losses of the company are reported on each individual’s income tax returns.
• A general partnership is easier to establish than other forms of businesses. There is not a lot of paperwork involved when developing a general partnership.
• The fact that there is another individual that is helping run this form of business is an added benefit. This adds additional manpower by having a different perspective on how to run the business. This can become a powerful asset when a business is facing particular difficulties.

Disadvantages:

• Each partner is responsible for the liabilities and financial obligations that come with running a business.
• There is a significant increase in disputes and conflicts if there are disagreements between partners.

Limited Liability Company:

A limited liability company or an LLC is similar to a general partnership. The significant difference is that an LLC protects a partner from any liabilities that can occur, similar to what a corporation offers.

Advantages:

• The assets of partners are protected when faced with liabilities or any other concerns that the business is experiencing.
• Each partner can report profits and losses of the business through each partner’s individual income tax returns.
• An LLC has a better opportunity in obtaining loans for the business to operate than other business entities.

Disadvantages:

• An LLC does not last forever. When a partner leaves the company, the business entity is no longer able to operate.
• Profits can be taxed. LLC members must pay self-employment taxes, which includes Medicare and Social Security taxes.

Corporation:

A corporation is a legal entity that is separate from business owners. The legal entity operates the business and has certain responsibilities that it must follow in order for the company to function effectively. Shareholders own this entity.

Advantages:

• If a corporation faces certain difficulties, usually financial ones, owners of a corporation are not liable. Their assets are protected through liability protection.
• If major shareholders are no longer part of a corporation, the business entity can continue its operations for as long as it would like.
• A corporation can raise funds through the selling of shares.

Disadvantages:

• A corporation has many rules and other forms of regulations that must follow. Each state as different sets of regulations, so owners are highly advised to acquire assistance to be able to understand how to operate a corporation without running into any issues.
• Government entities monitor corporations, so owners must be able to operate their businesses effectively in order to avoid legal issues.
• Corporations usually require a certain amount of time and funds in order to be formed.

Limited Partnership:

A limited partnership is generally made up of a general partner and a limited partner. A general partner is responsible for managing a business, as well as sharing profits and losses. Although a limited partner is not responsible for managing the company, he or she not only shares profits but is also only liable for the losses regarding their investments.

Advantages:

• Establishing a limited partnership is typically more cost-efficient than establishing other business structures such as corporations.
• Pass-through taxation is available for limited partnerships, just like other similar business structures. Partners can report profits and losses on their individual income tax returns.
• Investments are made easier because of the liability protections that this business structure establishes.

Disadvantages:

• The general partner usually carries the most responsibilities. Therefore he or she is more susceptible to the liabilities that a business can bring, such as debts and financial losses.
• A limited partnership becomes extinct if a partner leaves the organization.

Limited Liability Partnership:

Similar to a general partnership, the difference is that within this business entity, a partner is not responsible for the other partner’s liabilities.

Advantages:

• The number of partners that can be part of this form of business can be unlimited.
• There is an incredible amount of flexibility that can be found in an LLP. Partners can contribute to the operation and function of the business in whichever form they deem fit.
• Just like other partnerships, partners enjoy liability protection. They are not held accountable for the debts and expenses that other partners have created.

Disadvantages:

• Many states do not recognize LLP entities. This can create certain tax limitations when creating this form of business.
  Because partners do not have to disclose business dealings with other partners, this can create certain conflicts and misunderstandings.

Series LLC:

A series LLC refers to a business structure that allows the LLC to have multiple LLCs. For example, there is a principal LLC. This principal LLC controls or oversees the other, various LLCs. These LLC entities operate separately and posses liability protection from other LLCs.

Advantages:

• Assets of one LLC are protected from other LLCs that are facing liabilities.
• Establishing a series LLC is more cost-effective than forming a corporation.
• It is less complicated to operate a series LLC than it is to run a corporation with subsidiaries.

Disadvantages:

• The paperwork and management of a series LLC can become a challenge. Each separate LLC must have its own accounting.
• Not all states allow for the formation of series LLCs. States that permit this business structure include Texas, Delaware, Nevada, and Illinois.

Choosing the right structure for your business

If you are starting a business, there is so much that needs to be considered to efficiently create a business that will bring a significant amount of success to your life. Forming a company means knowing what business structure is best suited to generate profits and have minimal amounts of losses. Every single business structure has its advantages and disadvantages as we have just mentioned. You must think carefully, and analyze with high accuracy which structure is best for you and your goals. One of the most pressing concerns that most business owners face is based on the issues of taxation. Taxes can create a significant impact on the function of a business. There are business entities that can help owners manage and minimize taxation.

Another pressing concern is based on legal matters. There are business structures that are more susceptible to lawsuits and other liabilities. Other concerns that prospective business owners must consider is the amount of owners and the responsibilities that are given to them to operate a business. Also, administrative responsibilities that need to be followed for the business to continue to function. Laws and regulations need to be followed for a variety of business structures, and because of this, administrative duties must be completed with precision. These concerns are prevalent in all business structures, but certain structures can manage these elements of a business better than others. This is why we advise potential business owners to carefully analyze which structures are better suited to help their potential organizations maintain a level of harmony and experience the least amount of liabilities.

First Steps

Although prospective business owners may face certain hurdles in forming a business, once a wise decision is made, you can begin fulfilling the goals and aspirations you have set out to accomplish by becoming an entrepreneur. The first steps that must be made to establish an organization are filled with excitement, curiosity, and in many cases fear. Fear of the unknown is perhaps one of the main reasons as to why many individuals choose not to become business owners. We understand that making these steps are filled with uncertainty. You fear that your vision may not come to fruition. You may fear that the goals that you have set out to achieve may be stalled because any legal, financial, or administrative concerns that your business may face. You also perhaps fear that your business may fail. These are all legitimate concerns. When the correct advice and guidance is provided, the probabilities of your business facing such concerns are greatly reduced.

The Law Office of Yates and Associates is here to help you answer the questions that you may have in forming a business. If you are ready to make the leap in helping your dreams of becoming an entrepreneur turn into reality, don’t hesitate in contacting our associates to help you get started.

As we’ve mentioned, many individuals are turning into business owners in order to obtain a sense of autonomy. Although some may face certain uncertainties and concerns about operating a business, many take a leap of faith to achieve financial independence. When a business structure is formed correctly, the possibility of becoming financially independent is more likely. No longer will individuals fear that they may lose their employment because of layoffs or certain economic downturns. Being able to provide a great life to family and other essential individuals is undoubtedly a compelling reason as to why many choose the route of entrepreneurship. If you believe that a passion that you have may become an opportunity to start an enterprise, we will help you get started. It only takes the perfect structure to help transform your passions into a profitable and fulfilling business

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