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What is a Series LLC?

Last updated Sunday, April 7, 2024


A series LLC is a unique form of limited liability company ("LLC") in which the articles of formation specifically allow for unlimited segregation of membership interests, assets, and operations into independent series. Each series operates like a separate entity with a unique name, bank account, and separate books and records. A series LLC may have different members and managers in each series. The rights and obligations of these members and managers differ from series to series. Each series may enter into contracts, sue or be sued, and hold title to real and personal property.


A Series LLC is most commonly formed to protect assets. Also, it helps to reduce costs related to creating numerous LLCs and formation fees. Series LLCs were originally created for the purpose of streamlining collective investments and structured financial positions such as ETFs (Exchange-traded Funds) and mutual funds. Expenses are reduced because only the master LLC needs to be maintained with the Nevada Secretary of State (SOS), decreasing renewal and formation fees. Also, the master LLC may only be required to file one income tax return with the Internal Revenue Service (IRS).


In 2005, Nevada and many other states added the Series LLC to the list of entity forms. This opened the opportunity for a Series LLC to enter into contracts, grant security interests, sue or be sued, and hold title to assets, just like any other type of entity. A Series LLC can be formed in two ways:

There are two main benefits to a Series LLC:

Segregating Assets in a Series LLC:

An asset may be segregated within a Series LLC by forming a separate business entity for each asset. The purpose of segregating the asset is to protect it from liabilities and lawsuits from other cells. Certain states will allow the master LLC to file the one and only filing fee for the umbrella LLC. Remember, there is currently very little legal precedent regarding Series LLCs. Therefore, if you're operating in a state that doesn't grant this special barrier of protection, you have no guarantee that your assets will be covered.


For example, if the master Series LLC is registered in Delaware and the business operates in Illinois, then any legal proceedings will most likely be subject to Illinois state law. Certain states may recognize the Series LLC, but they may not recognize the liability protection between cells. In other words, if you're operating a Series LLC in a state that doesn't automatically grant liability protection between cells, then you're taking a massive risk by operating within that state.


Forming a Series LLC:

Starting a Series LLC is much easier than you may think. The formulation process is quite similar to forming a regular LLC. When forming a Series LLC, simply create the same articles of organization that you would for a standard LLC but include a provision that authorizes for the formation of cells within the entity. You will need to file articles of formation with the appropriate governmental entity in a state where series LLCs are permitted. To be distinguished from a regular LLC, most states require that the articles of formation specifically state that the LLC is authorized to form series.


You will need an operating agreement for the master LLC and one for each series you plan to form. A series LLC can create additional series whenever one is needed. The master LLC operating agreement generally provides rules for the overall operations of the series LLC. Likewise, operating agreements for each series provide customized rules for operations.


One of the benefits of a series LLC is that you only have to file articles of formation once. After forming the initial master LLC, each additional series is formed through internal mechanisms spelled out in the operating agreements. Typically this is done by amending the master LLC operating agreement and adding an additional series.


All contracts, notes, deeds, and agreements are signed under the name of the corresponding subsidiary LLC. Additionally, each subsidiary name must include the master LLC's name in the title (e.g. "Sample Company, a Nevada Series LLC"). By doing so, it provides notice and discloses the subsidiary's existence. The name of each subsidiary should be properly capitalized. There should be no ownership interest between subsidiaries and no co-mingling of funds. If each subsidiary is to be respected and treated as a separate company, along with its own legal identity, then it must act accordingly. As a business entity, series LLCs are very flexible and simple to use. The series LLC can be used by real estate investors who own multiple properties. Each series isolates and protects its properties from the liabilities of the properties in other series. Companies with different profit centers can use series LLCs to segregate and shield each business operation.


The most important characteristic of a series LLC is the liability protection that is available to each series. Assets owned by one series are shielded from the risk of liability of other series within the same series LLC. A series LLC is similar in concept to a corporation with several subsidiaries. However, the series LLC concept is designed to segregate risk within separate entities without the cost of setting up new entities. To maintain the liability protection of each series it is important to treat each series as a separate company. This includes having a separate bank account, maintaining separate books and records, signing contracts using the name of the series, documenting all transactions, and keeping adequate amounts of capital on hand for business purposes.


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© 2024 Marc Gohres

Revised April 7, 2024 10:24 AM



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