The California Limited Liability Company (“LLC’) is often used as an entity to limit personal liability in operating a business or holding assets such as real estate. An LLC’s members do not have personal liability for the debts of the LLC, as long as they respect the separateness of the LLC entity. An LCC is governed by the terms of an Operating Agreement Some licensed professions, however, such as real estate brokers and attorneys, are not allowed to use the LLC entity.
Not available under California law however is the “Series LLC”. A series LLC is a single LLC entity which can be composed of a number of ‘series;’ separate sub-entities which can hold different assets, and there is no crossover in liability between the series. Of course, the series have to each be treated as arms-length separate series, without commingling funds, but if they are they provide a unique protection. An experienced Sacramento Business Attorney can assist you in ensuring that you do not risk losing the protection of limited liability company.
As an example of how the series LLC works, suppose the John Doe LLC holds, in Series 1, a commercial property operated as a rifle range. Series 2 holds a 12 unit apartment building. If there is a tragic accident at the shooting range resulting in liability for the owner of the commercial property, a judgment can only be enforced against Series 1 assets, not Series 2 assets. This is equivalent to forming two separate California LLCs for the two properties. Delaware, Nevada, Illinois, Oklahoma, and Iowa all allow for series LLC.
However, there are considerations which make the Series LLC less useful in California. In any state which provides for series LLCs, you will be required to engage a full time agent for service of process in that state. You will pay the state fees annually, and will need a Certificate of Good Standing (or the local equivalent), because you must register the series LLC as a foreign LLC in California. A foreign LLC pays the same annual fee/tax as a domestic LLC of $800. However, most importantly, the California Secretary of State and Franchise Tax Board now take the position that EACH series must register separately, and thus each series must pay $800 annually for the privilege of being an entity legally doing business in California.