Using a Series LLC in California

I. INTRODUCTION

Attorneys generally recommend that their clients own real estate in some type of business entity, typically a limited liability company (“LLC”). One of the purposes of this method of ownership is to isolate the potential liabilities associated with real estate from the entity and the client’s other assets. If a client owns several properties, attorneys will commonly recommend that each property be owned by a separate business entity, again to limit the potential liability of each property to the assets of that separate entity. Clients are often reluctant to follow this advice due to the expense of creating multiple entities, the complications created by owning multiple entities, the cost of preparing income tax returns each year for each entity, and the exposure to annual franchise taxes and filing fees for each entity.

II. THE SERIES LLC

A series LLC is a single entity which allows for the creation of a separate “series” of interests within it. Each series may hold
different assets, have different members or managers, have different voting rights, as well as different profit and loss distribution requirements. The series LLC was first introduced in Delaware in 1996 and has since been adopted by many jurisdictions, including Nevada, Illinois, Iowa, Tennessee, and Oklahoma. Each of these jurisdictions has a similar statutory framework but there are variations in filing requirements, fees, and reporting. The Nevada statute is modeled after the Delaware statute and is typical of the law of other jurisdictions. It will be used in the balance of this article.

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Excerpt taken from California Real Property Journal, Vol. 24, No. 2