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If you have various real estate investments, then you don't have to set up a regular limited liability company (LLC). In some states, you can use a series LLC (SLLC) instead. How does this kind of company work and what are its benefits?
What Is a Series LLC?
In many ways, an SLLC works like a regular LLC. However, it covers multiple investments, assets, or business entities in a different way.
If you set up a standard LLC, then all your investments fall within this company. They share liability, infrastructure, and responsibilities. They are all connected.
An SLLC works like an umbrella company. It contains multiple investments, assets, or entities that are classed as a series.
Each part of the series operates independently within the SLLC. It can have its own business name, financial set-up, and operating structure. No two series parts need to operate in the same way or to be connected. So, if you have real estate investments in an SLLC, then each investment has stand-alone status within the company's umbrella.
While SLLCs have accredited status, they aren't open to every business owner. Your state has to recognize this business model before you can set it up.
What Are the Advantages of a Real Estate Series LLC?
If you hold all your real estate investments in a regular LLC, then you can have liability problems if something goes wrong with one of your properties, developments, or pieces of land. Everything you own here can be interconnected.
For example, if someone sues you because of something that happened in one property, then they might be able to claim against your investment portfolio as a whole. You could lose assets from other investments because all your investments share liability.
If your investments are held within an SLLC, then they get more protection. If you have a lawsuit against you on one property, then that is the only liability you have. Your other investments aren't liable because they are separate within your series. So, you reduce the risk of one investment affecting the finances and profitability of others.
Some real investment companies also prefer to use an SLLC because its administration is easier. For example, you won't have to set up multiple LLCs for all your investments; one SLLC will cover them all. This reduces your filing costs. Plus, you should be able to file one tax return for an SLLC compared to multiple returns for individual LLCs.
To find out more about using a series LLC, contact a professional.Share