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The Traditional LLC and Series LLC both provide limited liability protection to their owners. Their remarkable similarities often confuse business owners and they can’t decide between Series LLC vs. LLC (Traditional) as the best business structure for their new venture.
Let’s discuss the similarities and differences between a traditional LLC and a series LLC in detail and analyze which entity structure is more suitable for your business.
Series LLC vs Tradition LLC: What is the difference?
Traditional LLC is usually a single LLC that has the combined feature of a sole proprietorship, general partnership, and corporation. While series LLC has multiple LLCs registered under the umbrella of a master LLC.
How multiple businesses under one LLC are different from a series LLC?
Forming multiple businesses under one LLC with different DBA (Doing Business As) does not shield one business from the liabilities of the other. While in a series LLC, each business works as a separate LLC, and the liability of one business does not affect any other LLC under the master LLC.
The idea of a traditional LLC vs a series LLC may sound similar, but there are significant differences between a Series LLC and a traditional LLC. To understand the differences between these two types of entities, let’s take a closer look at what each of them does.
What is a Traditional LLC?
For starters, an LLC stands for “limited liability company.” It is a legal business structure in which the personal assets of the owners (LLC members) are not held liable for business lawsuits or debts.
You can start an LLC by filing articles of organization with a state agency, usually the secretary of state. If you are not confident, LLC filing companies can help you file your paperwork without lifting a finger.
Filing LLC articles/certificates of formation create a legal entity separate from its owners and provide them with limited liability protection from business financial obligations.
What is a Series LLC?
A Series LLC is similar to a traditional LLC in the sense that it has the same basic structure and provides limited liability for its members. The difference lies in how ownership is divided and managed.
With a Series LLC, the members can choose to create individual divisions of the company that are treated as separate entities for liability and taxation purposes.
Series LLC allows each division to have its own management structure, assets, accounts, liabilities, etc., while still being part of a single legal entity.
So, you can create different business lines each operating as a separate LLC under the umbrella of a master LLC. If one business faces debt or a lawsuit, other businesses are not liable.
Series LLC vs LLC: The Differences
A traditional LLC is different from a series LLC in many aspects given below:
1. Entity Structure
Traditional LLCs generally require all members to share in the profits and losses of the business as a whole. Whereas, series LLCs allow each division to have its own members, operating agreement, finances, management, profits/losses, taxation structure, debts, etc.
Important:
This means, in a series LLC, investors in one division can potentially make money without having to worry about how the other divisions are doing financially. While there is no such segregation or liability protection in traditional LLCs.
2. Liability Protection for Each Business
If you have multiple businesses under one LLC, the statute of a traditional LLC does not protect one business from the liabilities of the other businesses operating under that LLC. Whereas, a series LLC includes specialized provisions for protecting each division from the debts and liabilities of the other divisions.
Important:
Series LLCs have additional protections that traditional LLCs do not. This can be especially beneficial in cases where one division is riskier than another.
3. Control Over Business Matters
Traditional LLCs with multiple members may face difficulties in certain situations where a reasonable number of members disagree. The members of a Series LLC have increased control over how each division is managed and decisions are made.
Important:
This can be beneficial in cases where different investors want to invest in different aspects of the business without having to worry about conflicting opinions.
Series LLC vs LLC: The Similarities
Since traditional LLC and series LLC are both types of an LLC, they are similar in the following features:
1. Limited Liability Protection
Both types of LLCs provide limited liability protection for their members. The LLC owners/members are not held personally liable for the LLC debts, lawsuits, or any other business liabilities. The personal assets of the members will be shielded from business liabilities.
2. Formation
The formation of a traditional LLC and a series LLC is the same. Both have to submit articles of organization to the state.
However, in series LLCs, only the master LLC’s name will be mentioned and the articles of organization dictate that the LLC has the ability to form infinite series (LLCs) under its umbrella.
All other LLC formation documents are also the same in similar and traditional LLC.
Series LLC vs Traditional LLC: Which Business Entity is Better?
In the series LLC vs LLC comparison, it is hard to straightforwardly say which business entity is better. Frankly speaking, it depends on your specific business needs. Series LLCs offer more flexibility and control for owners but may be too complex for some businesses.
On the other hand, traditional LLCs provide a simpler and easier-to-manage structure but lack liability protection against each business operating under that LLC.
Here we discussed the advantages and downsides of traditional and series LLC so that choosing the right entity structure would be easier for you.
Advantages and Disadvantages of Traditional LLC
Advantages and Disadvantages of Series LLC
Conclusion
By understanding the ins and outs of series LLC vs LLC, you can make sure that you are choosing the best option for your company’s needs. Ultimately, it depends on your specialized business needs and future business goals to consider which type of LLC is right for you.
With the right legal advice and guidance, you can be sure that you are making the best decision for your company.
Frequently Asked Questions (FAQs)
What’s the difference between a traditional LLC and a Series LLC?
Traditional LLC is usually a single LLC that has the combined feature of a sole proprietorship, general partnership, and corporation. While a series LLC is a collection of multiple LLCs that operate under the umbrella of a master LLC.
Is multiple businesses under one LLC different from a series LLC?
No, if you have multiple businesses under one LLC, the liability of one business affects all the businesses operating under that LLC. While, in a series LLC, all businesses are considered separate LLCs, and one business is not held liable for the lawsuit or debt of the other business under that particular master LLC.
How is forming multiple LLCs different from creating a Series LLC?
Forming multiple businesses under one LLC with different DBA (Doing Business As) does not shield one business from the liabilities of the other. If any business faces debt, lawsuit, or any other business liability, all the businesses under that LLC will be held responsible. Whereas, in a series LLC, one business is shielded from the liabilities of the other.
Aisha Noreen is an owner of a small business with more than 9 years of experience in the marketing industry. With the wisdom of an old soul, she always seeks innovation and mind-blowing ROI techniques. Her unique approach helped many small businesses thrive and she can surprise you in many ways as well. Believe it or not, her energy, passion, and creativity are contagious enough to transform your business and take it to another level.
