Series LLC as a Holding Company

[Matt Quock]

Hi all,

I am hoping to get some clarification on how you can structure a Series LLC as a holding company that owns traditional LLCs within it. I understand a Series LLC provides the option for multiples "cells" that each act as their own LLC.

But... from what I gather, not all states (including WI, where I intend to purchase properties) have laws or cases that recognize Series LLCs or "cells" within a Series LLC. In theory, this could potentially eliminate any separation of liability between the "cells" within a Series LLC.

Is it possible / how would I structure a Series LLC (formed in TX, for this example) to accomplish the following:

1) Act as a holding company for traditional LLCs formed in WI for properties located in WI

2) Form "cells" within the Series LLC for properties in other states

In this example, would each "cell" need to register as a foreign entity in states outside of TX or only the Series LLC?

Thanks!
Matt

[Account Closed]

Originally posted by @Scott Smith:

@Matt Quock Great question! The Traditional LLC that you would use for your shell company or "doing the errands" is a totally separate entity. I like to think of it as your left hand and your right hand. On the left you have the Series LLC holding your assets. On the right you have the Traditional LLC acting as your face to the world - entering into rental agreement (if no property management company exists), hiring contractors, etc.

Scott,

In this example, would it be necessary for "Traditional LLC" to distribute money to each series? Or would any net profits realized by Traditional LLC just become rental income on the person's Schedule E, assuming that both Traditional LLC and the Series LLC are all 100% owned by the same single member?

For example, let's say my name is Jim Smith and I have a series LLC with three series that each hold one property:

• Jim's Real Property, LLC
  • 123 Main Street, LLC
  • 456 Second Avenue, LLC
  • 789 Third Way, LLC

Then I also have what you have been calling a "Traditional LLC" outside of the series that collects rent, pays the bills, etc. Let's call it Jim's Management, LLC.

If Jim's Management, LLC, collects a total of $5,000 a month in rent from the three properties contained in Jim's Real Property, LLC, does Jim's Management, LLC, then have to turn around and distribute that rent back to 123 Main Street, LLC, 456 Second Avenue, LLC, etc, or can Jim's Management, LLC, just use those proceeds as it sees fit to pay for a new roof on the house at 123 Main Street, pay the property tax bill at 456 Second Avenue, distribute some of the money to Jim Smith's personal account, etc?

In the end if all single-member LLCs are fungible disregarded entities in the eyes of the IRS, does it matter which one is ultimately "reporting" the rental income on Jim Smith's 1040? Is there any danger here in mixing funds?

If it's completely fine for Jim's Management, LLC, to operate in this fashion, is it even necessary for 123 Main Street, LLC, 456 Second Avenue, LLC, etc, to have their own bank accounts at all? The only thing those entities would be doing in that scenario is owning a single property. They wouldn't have to cash or write any checks themselves because Jim's Management, LLC, is doing it all.

I hope I'm understanding your example correctly. Please let me know if I am missing something.