The main difference between a Series LLC and a Restricted LLC is that a Series LLC is a normal business LLC that is set up to hold several properties within one LLC. A restricted LLC is an entity created to transfer assets within a family that is not meant for doing business. This guide covers the difference between a series LLC vs a restricted LLC. Which one is best for your business.
What’s the Difference Between a Restricted LLC and a Series LLC?
Owners of small firms must make decisions about their formal organizational status as they grow or before they debut. Many businesses begin with a simple DBA (Doing Business As) status, but later transition to a single proprietorship, partnership, or limited liability company.
LLCs are particularly advantageous and come in many faces: Series LLC, Single-Member LLC, Family Limited Partnerships, Anonymous LLC, and many others. This article seeks to explain the difference between a restricted LLC and a series LLC.
Before going into the 2 categories of LLCs, let’s first understand the meaning of a limited liability company. It is a business entity formed to protect its owners from personal liability.
This means that the owners of the firm cannot be held personally liable to pay the debts of this entity. An LLC is also taxed separately from its owners per the law but this varies from state to state.
To differentiate LLCs even further, some countries have divided them into restricted LLCs and series LLCs. When forming your LLC, make sure you hire a professional to guide you through the process as well as ascertain your compliance with the applicable laws.
Check out the Go Vitru complete guide to Limited Liability Companies.
What Does a Series LLC Entail?
A series LLC is a limited liability company that comprises different groupings of assets, liabilities, and operations. Each grouping has its unique purpose meant for the good of the overall company.
Simply put, a series LLC is like a giant umbrella that covers smaller entities, similar to how a company may have branches. However, with this arrangement, the expenditure of forming separate entities is eliminated.
As much as the series operate under one large umbrella, they are expected to run their operations separately. First, each of them must maintain its books of accounts and have a separate accountant if need be.
The reason some companies settle for this kind of arrangement is to separate the liabilities of a company. When one series gets sued, the other series cannot be held liable.
Some businesses like property management firms can greatly benefit from such a structure. This is because each managed property is treated as a series, separate from the others. It does not matter that they are all managed by the same company.
Learn how to form your own LLC.
Which States Allow the Formation of a Series LLC
Unfortunately, not all states allow the formation of a series LLC. Here is a list of states that accept this kind of business entity:
This means that you cannot form a series LLC in California. However, if you already have this entity in another state, you can register your series LLC to do business in California.
What Does a Restricted LLC Entail?
This is the kind of LLC that is only used for estate planning. For example, it comes in handy when transferring property from one member of the family to another. However, this entity cannot make any property or financial distributions until 10 years have elapsed since its establishment. To make matters worse, the amount of money transferable under a restricted LLC is highly limited by the state.
While this entity may appear to have many disadvantages, it is highly beneficial because it cannot be taxed. In addition, such an entity cannot be dissolved and is meant to last a lifetime. Remember, for a company to become a restricted LLC, it has to clearly state this move in its articles of association.
States that Allow Restricted LLCs
2 Key Differences between Restricted and Series LLCs
- A series LLC operates like an umbrella that covers different entities. On the other hand, a restricted LLC is a single entity meant to transfer assets within a certain family without doing any commercial activities.
- A restricted LLC can only begin transferring properties 10 years after its formation while a series LLC can start its operations immediately.
What is assistance setting up your LLC?
Wind Up – Series LLC vs Restricted LLC
A series LLC differs from a restricted LLC in many ways. You must therefore understand what each entails for you to choose the one that suits your business best.
Disclaimer: All the information contained in this article is purely meant to educate and is in no way professional or legal advice.