How to Create a Series LLC in Tennessee

What Is a Series LLC?

A Series LLC is a unique form of a limited liability company that allows for the creation of multiple, distinct series or cells within a single LLC. Each series operates independently, with its own assets, liabilities, and members. This structure allows for the segregation of assets and liabilities among the series, providing liability protection for each series from the debts and obligations of the others.

Does Tennessee Allow Series LLCs?

Yes, Tennessee permits the formation of Series LLCs under the Tennessee Revised Limited Liability Company Act. The relevant statute is Tenn. Code Ann. § 48-249-309. This statute requires specific language in the formation documents to authorize the creation of series within the LLC.

How a Tennessee Series LLC Works

In a Tennessee Series LLC, the master LLC acts as the umbrella entity, under which individual series are established. Each series can have its own members, assets, and liabilities, and is treated as a separate entity for liability purposes. Proper recordkeeping is essential to maintain the separation between series, ensuring that the liabilities of one series do not affect the others.

Benefits of Forming a Series LLC in Tennessee

• Cost Efficiency: Forming a Series LLC can be more cost-effective than creating multiple separate LLCs, as it reduces the need for multiple filings and administrative tasks.
• Asset Segregation: Each series can hold its own assets and liabilities, protecting them from the risks associated with other series.
• Administrative Flexibility: The structure allows for easy addition or removal of series without affecting the overall LLC.

Limitations and Risks of a Tennessee Series LLC

• Legal Uncertainty: The Series LLC is a relatively new entity type, and its treatment in jurisdictions outside Tennessee may vary.
• Banking and Lending Challenges: Some financial institutions may be unfamiliar with Series LLCs, complicating banking and lending processes.
• Tax Complexity: Managing tax compliance for multiple series can be complex, requiring careful attention to state and federal tax obligations.

Who Should Consider a Tennessee Series LLC?

A Series LLC may be suitable for businesses involved in real estate, asset holding, or intellectual property management, where asset segregation is beneficial. However, for businesses with simpler structures or those operating in multiple states, a traditional LLC might be more appropriate.

Step-by-Step: How to Create a Series LLC in Tennessee

Step 1: Choose a Name for the Series LLC

The name of the Series LLC must comply with Tennessee naming requirements, including the use of "LLC" or "Limited Liability Company" as a designator. Each series within the LLC should have a distinguishable name that includes the name of the parent LLC.

Step 2: Appoint a Tennessee Registered Agent

A registered agent must be appointed for the Series LLC. This agent must be a resident of Tennessee or a business entity authorized to do business in the state, responsible for receiving legal documents on behalf of the LLC.

Step 3: File the Certificate of Formation

The Certificate of Formation must be filed with the Tennessee Secretary of State. This document includes basic information about the LLC, such as its name, registered agent, and principal office address. Filings can be submitted online or by mail.

Step 4: Include Series LLC Language

The Certificate of Formation must include specific language authorizing the creation of series within the LLC. Failure to include this language may result in the inability to form series under the LLC.

Step 5: Draft a Series-Compliant Operating Agreement

An operating agreement is crucial for governing the internal operations of the Series LLC. It should outline the management structure, asset and liability separation, and the rights and responsibilities of members for each series.

Step 6: Establish Individual Series

Individual series are created internally within the LLC. Proper documentation and recordkeeping are essential to maintain the separation of assets and liabilities among the series.

Step 7: Obtain EINs (Parent and Series, If Needed)

An Employer Identification Number (EIN) is required for the parent LLC and may be necessary for each series, depending on their activities and tax obligations.

Step 8: Open Separate Bank Accounts

Separate bank accounts should be opened for each series to ensure financial separation and prevent commingling of funds, which could jeopardize liability protection.

Step 9: Comply With Tennessee Tax Requirements

The Series LLC must comply with Tennessee tax requirements, including state business taxes and any applicable franchise taxes. Each series may have its own reporting and payment obligations.

Tennessee Series LLC Filing Fees and Costs

The filing fee for the Certificate of Formation is $300. Additional fees may apply for each series and for ongoing compliance requirements.

Tennessee Franchise Tax and Series LLCs

Series LLCs in Tennessee are subject to the state franchise tax. Each series may be required to file separately, depending on its activities and income.

Ongoing Compliance Requirements for Tennessee Series LLCs

Tennessee Series LLCs must file annual reports and maintain proper records for each series. Compliance with state laws and regulations is essential to maintain liability protection.

Common Mistakes When Forming a Series LLC in Tennessee

• Missing Required Series Language: Failing to include series authorization language in the formation documents can prevent the creation of series.
• Poor Recordkeeping: Inadequate documentation can lead to liability issues between series.
• Mixing Assets Between Series: Commingling funds or assets can jeopardize the liability protection of each series.

Series LLC vs Traditional LLC in Tennessee

A Series LLC offers a flexible structure with potential cost savings and asset protection benefits, while a traditional LLC may be simpler and more straightforward for businesses with less complex needs. The choice between the two depends on the specific requirements and goals of the business.

Additional Resources

• Tennessee Secretary of State Main Page
• Business Services Division
• Tennessee Department of Revenue
• Contact: (615) 741-2286, Business.Services@tn.gov

This article provides general information about Tennessee LLC formation requirements under the Tennessee Revised Limited Liability Company Act. It is not intended as legal advice. Persons forming an LLC should consult with a private attorney regarding their specific circumstances.