Out of State Series LLC, Legal And Tax Implications

[Todd Magin]

Apparently the formation of Series LLC's are only "allowed" in a few states. I live (and will invest in) Maryland, which does not allow the formation of Series LLCs. Is using a Series LLC as simple as forming it in another state such as Delaware where they are allowed?

Are there legal ramifications of skirting the MD law in such a manner?  Since the business resides in MD, does the MD law trump the Delaware law?

What are the tax implications?  Do I have to file returns in both MD and Delaware?  Annual fees to both MD and DE?

Would a RE attorney know both sides of this equation or would I need an accountant as well?

[Simon Filip]

I agree with @Steven Hamilton II you will likely have to register each LLC in the series in Maryland.

I always caution clients considering a series LLC. Conceptually, a Series LLC is created to reduce costs and simplify the structure. It is certainly a "good fit" for some entities, but should be reviewed with both an attorney familiar with Series LLC and a Tax Adviser experienced with the structure.

There have been occasions in practice where I have found the goal of reduced costs and administration of a series LLC has fallen short. For example a Series LLC created in Delaware that had rental real estate investments in multiple states. Additionally, a Series LLC that had a presence in California (which does not recognize the Series LLC) and was subject to the $800 annual LLC tax for each series. Additionally each series with California nexus was required to file a separate tax return. This caused additional tax preparation work (fees) and confused the investors that were receiving more K-1s than expected.

If you have additional questions, feel free to contact me.