Using a Limited Liability Company (LLC) is one of your options when choosing a business entity. The newest player in the entity ballpark is the Series LLC. Several USA state statutes now recognize it (and Puerto Rico ) with more states to enact legislation in the future I am sure. Here’s a brief tutorial on what a Series LLC is and why arts and crafts businesses may find it of interest.
Definition of a Series LLC
A Series LLC is one limited liability company that has been sectioned off into different parts. Each part has its own members, rights and obligations. The separate parts stand collectively under the umbrella of the parent LLC.
Advantages to Arts and Crafts Business Owners to Forming a Series LLC
Many of my clients have an S-Corp or a C Corp through which they run the day-to-day business operations. If they own the building or factory that houses their business, the ownership of that real property asset is kept in an LLC so it’s protected in case of a lawsuit against the business. In other words, if a judgment is entered against the business, the plaintiff can’t seize the any real property assets held in the LLC.
I can see a Series LLC being an advantage to an Arts and Crafts business owner who owned several different arts and crafts businesses, expensive equipment or as stated above, real estate used in the business. For example, a woodworking business could sell finished product retail to the homeowners, provide wholesale fabrication for other furniture making businesses or sell the raw materials to other woodworkers. Using a Series LLC, each of these different business purposes could stand alone within the Series LLC. Expensive tools and equipment could be held in another and the owned business location in yet another.
Series LLC Uncertainties
Right now, it’s up in the air how lawsuits would be handled if a business in a state not recognizing Series LLCs sues a business in a state with Series LLC legislation. In addition, it’s iffy how a Series LLC would be handled as a debtor in federal bankruptcy court. Additionally, taxation of the Series LLC is rather complex.
There is an IRS Letter Ruling addressing the issue. However, due to the fact that Series LLCs are in their infancy, I highly suggest you consult with a knowledgeable attorney or accountant before you consider this type of business entity.
