How to Create a Series LLC in Alabama

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 Alabama Allow Series LLCs?

Yes, Alabama permits the formation of Series LLCs under the Alabama Limited Liability Company Law. The relevant statute is found in the Alabama Code, Title 10A, Chapter 5A. It is essential to include specific language in the formation documents to authorize the creation of a Series LLC.

How a Alabama Series LLC Works

In an Alabama Series LLC, the master LLC or parent company can establish multiple series, each functioning as a separate entity with its own assets and liabilities. The master LLC maintains control over the series, but each series is treated independently for liability purposes. Proper recordkeeping and structural compliance are crucial to maintaining the separation between series.

Benefits of Forming a Series LLC in Alabama

• Cost Efficiency: Forming a Series LLC can be more cost-effective than creating multiple traditional LLCs, as it allows for the management of multiple entities under a single umbrella.
• 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 streamlined management and administration of multiple business ventures.

Limitations and Risks of a Alabama Series LLC

• Legal Uncertainty: The Series LLC is a relatively new concept, and its treatment may vary across jurisdictions, leading to potential legal uncertainties.
• Banking and Lending Challenges: Some financial institutions may be unfamiliar with Series LLCs, complicating banking and lending processes.
• Tax Complexity: Navigating the tax obligations for each series can be complex and may require specialized knowledge.

Who Should Consider a Alabama 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 simpler business structures, a traditional LLC might be more appropriate.

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

Step 1: Choose a Name for the Series LLC

The name of the Series LLC must comply with Alabama's naming requirements, including the use of "Limited Liability Company" or an abbreviation like "LLC." Each series should have a distinguishable name that includes the parent LLC's name.

Step 2: Appoint a Alabama Registered Agent

A registered agent must be appointed for the Series LLC. The agent must be a resident of Alabama or a business entity authorized to do business in the state, available during regular business hours to receive legal documents.

Step 3: File the Certificate of Formation

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

Step 4: Include Series LLC Language

The Certificate of Formation must explicitly state that the LLC is authorized to establish series. 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 essential for governing the internal operations of the Series LLC. It should outline the separation of assets and liabilities among the series and detail the management structure.

Step 6: Establish Individual Series

Individual series are created internally within the LLC. Proper documentation and recordkeeping are necessary to maintain the separation and independence of each 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

Each series should have its own bank account to ensure financial separation and prevent the commingling of funds, which could jeopardize liability protection.

Step 9: Comply With Alabama Tax Requirements

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

Alabama Series LLC Filing Fees and Costs

The filing fee for the Certificate of Formation is $200. Additional fees may apply for each series and ongoing compliance requirements.

Alabama Franchise Tax and Series LLCs

Series LLCs in Alabama are subject to state-level taxation. Each series may have separate reporting obligations, and it is crucial to understand the specific tax treatment for each series.

Ongoing Compliance Requirements for Alabama Series LLCs

Compliance includes filing annual reports, maintaining accurate records, and adhering to any state-specific requirements. Each series must be managed in accordance with the operating agreement.

Common Mistakes When Forming a Series LLC in Alabama

• Missing Required Series Language: Failing to include series authorization in the formation documents can prevent the establishment of series.
• Poor Recordkeeping: Inadequate documentation can lead to the loss of liability protection.
• Mixing Assets Between Series: Commingling funds or assets can compromise the separation between series.

Series LLC vs Traditional LLC in Alabama

A Series LLC offers a flexible structure for managing multiple ventures under one entity, while a traditional LLC is simpler and may be more suitable for single-business operations. The choice depends on the complexity and needs of the business.

Additional Resources

• Alabama Secretary of State Main Page
• Business Division/Formation Page
• Alabama Department of Revenue
• Contact Information: Phone: (334) 242-5324, Email: business.services@sos.alabama.gov

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