Grow Your Business With a Series LLC

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According to the Bureau of Labor Statistics, 20% of businesses fail in their first year, and only 50% will make it to their fifth year. One of the main reasons businesses fail is inflexibility. You often find inflexibility in a company’s business plan, however, it can also show up in its legal structure.

More traditional entity types, like LLCs, are not dynamic and can add friction when a company is trying to grow and expand. Successful business owners have used Delaware Series LLCs to get past this. Serial entrepreneurs are using Delaware Series LLCs as a growth hack to protect their personal assets while quickly scaling their business ideas.

The Delaware Series LLC Business Growth Hack

Forming a Delaware Series LLC can enable entrepreneurs looking to explore several business ideas in hopes of finding out what works. Here is how to use a Delaware Series LLC to accelerate business growth.

 Step 1.) Protect Multiple Businesses With One Entity

A Series LLC enables entrepreneurs to incubate different ideas or products while protecting both themselves and the business as a whole.

An entrepreneur can put different businesses into individual protected series. This keeps the assets and liabilities of each business separate from one another. If one business experience’s setbacks, or even fails, the creditors of that business cannot come after the assets of related businesses or the Series LLC in general.

Additionally, business owners also receive these protections for their personal assets. This offers entrepreneurs the freedom to put ambitious thoughts into action.

Step 2.) Spin Off Successful Businesses

Entrepreneurs trying several ideas and gaining experience are bound to find a business that takes off. Series LLC owners can spin off successful businesses held within protected series as separate LLCs.

By incubating business ideas and spinning off winners, entrepreneurs can substantially reduce their personal liability risk while achieving significant business benefits.

What Is a Series LLC?

Most entrepreneurs are familiar with the traditional Limited Liability Company, or LLC. The LLC has become the most popular entity type for small businesses. This is because LLCs are easy to set up and relatively cheap to maintain.

The Series LLC is the next evolution of the LLC. Created by Delaware in 1996, the Series LLC allows companies to provide limited liability protection for multiple businesses using just one entity.

A Series LLC has the ability to create an unlimited number of separate units called “protected series”. Each protected series can have a separate business purpose, separate business assets and even separate members or managers.

Delaware Series LLC vs. LLC

Before the Series LLC, entrepreneurs had to endure a more costly and inefficient process to protect multiple businesses from cross liability. Business owners traditionally form each new business as a separate LLC; each of which is owned by a Holding Company. Forming each LLC requires filing a Certificate of Formation, paying associated filing fees, and paying Annual Franchise Tax.

The Delaware Series LLC is great for serial entrepreneurs because it is completely flexible. The Series LLC enables entrepreneurs to create unique ownership structures that are tailored for the specific needs of their business. A Delaware Series LLC can also be more cost effective to maintain. Creating a Delaware Series LLC requires making only one filing and paying one Annual Franchise Tax for the whole entity.

Delaware Series LLC Business Benefits

In addition to asset protection, the Delaware Series LLC offers several key business benefits. These benefits include:

  • Reduced Costs

 Forming a Delaware Series LLC requires paying only one filing fee. Additionally, a Delaware Series LLC only needs to make one Annual Franchise Tax payment no matter how many protected series it creates.

  • Flexibility

The Series LLC offers flexibility through its Operating Agreement. The Operating Agreement is a private document that governs the internal affairs of a Series LLC.

The Operating Agreement allows Series LLC members to tailor a legal structure that meets the needs of their business. Members can create unique ownership structures, establish special provisions like a Right of First Refusal, and make personalized schedules for distributing profits.

Series LLC owners can easily adjust the company’s legal structure as it grows by amending the Operating Agreement. Since the Operating Agreement is a private contract, Series LLC members can make changes to the ownership structure without having to file any documents with the state.

  • Administrative Efficiency

Series LLC owners create new protected series simply by adding them in the Operating Agreement. No additional state filings are necessary after forming a Series LLC.

  • Consolidated Ownership

Members in a Series LLC can be associated with each protected series. Serial entrepreneurs can centralize decisions across multiple businesses. This enables ease of management.

How Do Series LLCs Work, Exactly?

Protected series of a Series LLC have their own asset shields, just like a traditional LLC. A Series LLC protects the business assets of each protected series from the liabilities of the other businesses. This means you can manage multiple businesses under one entity while keeping their individual assets and liabilities separate.

This asset protection strategy is called “ring fencing”. Think of a Series LLC like horses in a barn. Protected series all exist under one roof. However, internal firewalls rope off the assets and liabilities of each protected series in separate paddocks.

Additionally, the personal assets of Series LLC members are also protected from the business liabilities of any protected series and are off limits to business creditors.

Who Uses Series LLCs?

Any business holding low-risk assets can use the Series LLC to achieve asset protection. Entrepreneurs currently use Series LLCs to protect a wide range of innovative businesses, from sophisticated investment companies to savvy ecommerce businesses.

Series LLCs have taken off in popularity amongst real estate investors. Individuals and firms managing a portfolio of properties are able to reduce liability risk by holding property titles within separate protected series. This protects each property from obligations and liabilities of any other property held within the Series LLC.

 

 

What’s the Best Way to Run Multiple Businesses Under One LLC?

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If you’re a serial entrepreneur looking to maintain multiple businesses or product lines under one entity, you have several options. These include:

  1. Forming one LLC and creating multiple trade names for each business.
  2. Forming multiple LLCs managed by a Holding Company.
  3. Forming a Delaware Series LLC

Each of these strategies differ in cost and liability protections. Picking the best plan for you depends on the type of businesses you operate, your ultimate business goals, and your appetite for liability risk.

We explain the who, what, how, and how much for running multiple businesses. 

 1. MULTIPLE DBAs

 What Is A DBA?

A DBA (“Doing Business As”) is a trade name that an LLC or corporation can use other than its formal corporate name. For example, Agents and Corporations, Inc. trades under the name “IncNow®.” A DBA is also referred to as a “fictitious name.”

DBAs are useful because they provide clear public notice that a particular business is actually incorporated under a different name. Entrepreneurs use DBA’s to distinguish separate businesses that are operated by one legal entity. The Limited Liability Company, or LLC, is the most popular entity type for small businesses. 

How To Get A DBA.

Businesses acquire DBAs by filing a form with the Secretary of State in the company’s state of formation. DBAs also need to be notarized by an official notary in the state of formation.

The form requires general information about the business, such as:

  1. The corporate name,
  2.  The business address
  3. The date of formation or incorporation,
  4. The DBA trade name,
  5. Nature of business,
  6. and the members/partners of the business and their addresses.

How Much Does A DBA Cost?

 The cost of acquiring a trade name is relatively low. Filing a DBA in Delaware requires paying a filing fee of $25. There are no additional annual costs associated with maintaining a DBA.

DBA Business Protections.

 A disadvantage of the multiple DBA strategy is that there is virtually no internal liability protection. When multiple businesses are operated under one LLC, the individual debts, obligations, and liabilities of each business are not segregated from one another. This means that a hostile creditor of one business could potentially gain access to the assets of another business, or the personal assets of the LLC’s members.

Who Uses DBAs?

Entrepreneurs running small scale or early stage businesses may benefit the most from the multiple DBA strategy. In this stage, the general liability risk of the business is low. 

An example would be an at home entrepreneur running multiple ecommerce sites selling different types of products. Each online store can have its own trade name and exist under one LLC.

2. FORMING A HOLDING COMPANY.

What Is A Holding Company? 

A holding company is an entity created for the purpose of owning and managing other individual companies. Businesses owned by a holding company are known as subsidiaries. Each subsidiary can have its own business operations while keeping its assets and liabilities separate from other related businesses.

How To Form A Holding Company. 

Setting up a holding company starts with forming each business as an LLC. This is done by filing Certificates of Formation with the Secretary of State for each entity. The Operating Agreements of each subsidiary LLC will name the general holding company as the sole member.

How Much Does A Holding Company Cost? 

Forming an LLC in Delaware requires a $90 filing fee. Each LLC will also have to pay an annual fee to appoint its own Registered Agent.

Additionally, Delaware requires each LLC pay the Delaware Annual Franchise Tax. This is a $300 payment due annually on June 1 each year after formation.

Holding Company Business Protections.

A holding company benefits from liability protections by operating each subsidiary as a separate LLC. The holding company is not subject to the debts, liabilities, or obligations of any subsidiary LLC. This means creditors of a subsidiary cannot access company assets of any other business. The personal assets of the LLC owners are also protected from business liabilities of any subsidiary.

Who Uses Holding Companies? 

A holding company can benefit businesses holding assets with low to moderate levels of financial risk. The relatively high overhead costs of forming a holding company can be worthwhile if the structure keeps the failure of one business from sinking the entire enterprise.

Holding companies are popular amongst real estate investment firms owning and maintaining multiple properties. Traditionally, each subsidiary LLC is used to hold title to an individual property. while a parent LLC manages the properties. This allows the company to acquire separate financing for each property while shielding them from cross liability.

3. FORMING A DELAWARE SERIES LLC

What Is A Delaware Series LLC?

A Delaware Series LLC is able to create an unlimited number of protected series fenced within one entity. Each protected series can function like a mini LLC with a separate business purpose, assets and members. A protected series can be spun off into separate LLCs once the business takes off. 

The Series LLC’s key feature are the internal firewalls separating each protected series. The Delaware LLC Act provides protected series with limited liability protection between one another, as well as the main LLC. Series LLC owners achieve these protections without having to make any additional filings.

How To Form A Delaware Series LLC. 

Only one Certificate of Formation needs to be filed to create a Delaware Series LLC. This is one advantage that the Series LLC has over the holding company.  It is important that the Certificate of Formation includes appropriate language establishing the limited liabilities of a series.

The parent LLC can then create an unlimited number of protected series without incurring any additional costs. A Delaware Series LLC creates and dissolves protected series by amending its internal Operating Agreement. 

How Much Does A Delaware Series LLC Cost?

Setting up a Delaware Series LLC can be significantly more cost effective than forming a holding company with multiple subsidiaries. Forming a Series LLC in Delaware involves paying the typical state filing fee.

Delaware requires Series LLC to make only one Delaware Annual Franchise Tax payment each year after formation. Protected series are not required to pay Delaware Annual Franchise Tax. A Delaware Series LLC can create an unlimited number of protected series at no additional costs to maintain them. 

Who Uses Delaware Series LLCs? 

The Delaware Series LLC is the cutting edge in asset protection structures. The entity benefits entrepreneurs looking for the freedom to explore opportunities and incubate multiple business ideas.

From a small local farm owning multiple pieces of equipment, to large scale investment companies managing segregated mutual funds, the Series LLC is a dynamic structure that grows along with the business. Low startup costs and internal liability protections make the Delaware Series LLC a viable vehicle for holding a range of asset types, from simple cash assets to leveraged securities. 

Series LLC Considerations

Operating a Series LLC requires diligence and organization. Delaware’s LLC laws include specific record keeping requirements that need to be met for the internal liability shields of protected series to be valid.  

As easy as it may be to set up a Delaware Series LLC, it is also easy for members and managers to inadvertently impose cross liability upon themselves and their businesses. The most successful entrepreneurs use systems to manage separate records and adhere to these requirements.