What Is an Alabama Series LLC?
If you’re thinking about buying a business with subsidiaries in Alabama or creating your own holdings company, then you’re likely looking at a business formation referred to as a series LLC.
An Alabama series LLC functions much like a traditional LLC in terms of liability protection and tax status. However, considering you’ll be handling more than one physical business and operations, having a series LLC allows you to manage them without having to apply and file for individual LLCs.
There are also several other key differences you need to understand about garnering a series LLC in Alabama that makes it a unique situation compared to a regular LLC as well as the series LLCs in other states.
To learn more about forming a series LLC in Huntsville, Alabama and what’s involved in the process, keep reading.
What Exactly Is a Series LLC in Alabama?
LLC stands for limited liability company, which is a form of a business entity that affects your business’s legal structure and tax status. LLCs are not corporations, however, they do offer similar liability protection as corporations, such as S Corporations, since the business structure itself is separate from the owners or members.
For example, an LLC that has more than one member can be taxed as a partnership in which the profits pass through to the partners (or members) via their share of the business. This type of simplicity and flexibility is what makes LLCs a popular choice compared to other business forms.
An Alabama series LLC (SLLC) is a limited liability company that includes what is referred to as a “master” or “umbrella” LLC and other LLCs that are separate from each other.
The LLCs that fall under the master LLC are called cells, and each cell LLC maintains its own assets separately while the master LLC has control over the entire series.
Additionally, each cell LLC may have its own owners/members and is only liable for its own debts, obligations, interests, profits, and losses, so long as certain formalities are followed, these entities are great options for business owners and entrepreneurs.
What’s Different About a Series LLC in Alabama?
Puerto Rico, the District of Columbia, Alabama, and 13 other states within the U.S. have state laws allowing for the creation of series LLCs. In the states and territories that have local laws regarding series LLC formation, you’re required to file a Certificate of Formation to get the process started.
Alabama is the only state that requires you to reserve your series LLC name before you can file your certificate of formation, which separates it from the rest of the states. While this is easy to do, you do have to pay a fee (usually $28) to reserve your Alabama series LLC name online.
You can also mail in a paper copy of the Alabama Name Reservation Request Form for Domestic Entities to the Alabama Secretary of State for a $10 fee (or a $25 expedited 24-hour processing fee).
To officially name your Alabama series LLC, you must include the words “limited liability company” or at least the abbreviation for it to be approved by the state. You also have the option to add “series” before the LLC part, although it’s not a legal requirement, but is best practice to have in there.
Once you’ve successfully reserved your series LLC name, you can print your reservation certificate and include it as your documentation with your Alabama Series LLC Certificate of Formation to file.
It’s important to keep in mind that each county within the state will have its own probate and processing fee when it comes to Alabama series LLC name reservations. It also costs $200 to file your Certificate of Formation, plus any attorney fees if your Alabama business lawyer is filing on your behalf.
Agreements and Registered Agents
Other critical factors that separate the state of Alabama from the others in regards to series LLCs are the registered agents and company agreements required to make your Alabama series LLC official.
Your Alabama series LLC is required by law to appoint and maintain a registered agent that will receive the service of process on the company’s behalf.
Whomever your series LLC’s Alabama registered agent is, they must be available during the standard business hours at the registered business address listed on the Certificate of Formation.
The good news is that your series LLC’s Alabama registered agent can be the registered agent for each and every one of your cell LLCs. However, if any of your cell LLCs are registered as a foreign business entity outside of the state of Alabama, then you will need to appoint a different registered agent within that other state.
All About the LLC Agreements
Lastly, you need to have an LLC Agreement. Your series LLC Agreement, sometimes also referred to as an LLC operating agreement, is what authorizes your series LLC to create its individual cell LLCs.
Additionally, an LLC company agreement defines the structure of your business, as in who owns it, which members are associated with which cell LLCs, and most importantly—how your series LLC in Alabama will legally handle any challenges and disputes in the future.
LLC company agreements contain a laundry list of other important details that you don’t want to miss, which is why it’s crucial to have your Alabama business lawyer or a Huntsville law firm draft your agreements and detail its clauses.
Is a Series LLC Right for Your Business?
Series LLCs, in general, aren’t as common as regular LLCs in business formations. This is largely due to series LLC being a newer type of business formation, which is why not every state has local laws and regulations for them.
That said, series LLCs have a lot of potential in terms of the advantages they can offer if you’re forming a holdings company or a company with subsidiaries. However, they also come with a few disadvantages considering they are new and the laws aren’t widely fleshed out.
Here’s a closer look at the pros and cons:
The Advantages of a Series LLC in Alabama
● Since only one filing fee is required and your Alabama business lawyer can set up the master and cell LLCs at once, you’re looking at reduced startup costs (compared to setting up multiple individual LLCs).
● The assets of each cell LLC in your series will be potentially protected individually from judgments or creditors of other cells LLCs within the series. That means that if there’s a legal dispute with the vendors of cell LLC 3, they can’t necessarily go after the assets associated with cell LLC 1 or 2 for collection.
● You can use the same administrative representatives and systems for all of your cell LLCS, versus having to use individual administration with separate LLC entities.
● Series LLCs are less complex than having a corporation/subsidiary business structure in terms of taxes, formalities, and expenses.
● You only need one state registration filing and one registered agent for your master LLC as it assumes that all your cell LLCs are registered together.
● You’re only responsible for filing one tax return for your master LLC rather than several individual tax returns. (It’s important to note that it will still be a complicated process, but not as complicated and burdensome as having to file multiple tax returns for individual LLCs).
The Disadvantages of a Series LLC in Alabama
● You’ll need to establish separate bank accounts and accounting for each cell LLC since they’ll be producing financial statements that are independent of each other.
● Series LLCs are complicated because there are more moving parts involved (However, there are no additional filing fees or administrative costs for adding more cell LLCs to your series).
● Since the concept of a series LLC is still relatively new, the law is still open in some areas on how these entities will be treated in unique situations, such as in a bankruptcy case that may involve one cell by not another. This is somewhat uncharted territory.
● Paying federal and state taxes on series LLCs could become somewhat complicated since each cell LLC could have different members, will garner independent financial statements, and have individual bank accounts.
Learn More About Series LLCs and how They can Affect Your Business
Whether you’re buying a business in Huntsville, AL that involves multiple separate companies or forming your own umbrella company to hold real estate investments or intellectual property assets, looking into a series LLC business formation should be your first step in getting everything done right.
However, being that series LLCs are still new in the business world, you’re going to need the help of a licensed and experienced Alabama business lawyer. Get in touch with us today to speak with a Huntsville corporate attorney with Sarah S. Shepard, LLC about setting up your new Alabama series LLC and more.