What Is the Difference Between a Series LLC and a Restricted LLC?

By Brette Sember, J.D.

What Is the Difference Between a Series LLC and a Restricted LLC?

By Brette Sember, J.D.

A limited liability company (LLC) is a convenient way to organize your business, as it allows you to use pass-through taxation while maintaining personal liability protection for members, without the complications involved in becoming a corporation. Each state has its own LLC laws and regulations. Some states have created special classes of LLCs, such as series LLCs and restricted LLCs, to offer unique benefits. When forming your LLC, be sure to perform research or work with an attorney or legal document preparation service to make sure you comply with your specific state laws.

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Basics of a Series LLC

A series LLC is a type of LLC whose articles of organization set up a series of individual assets, operations, and members. Each series is legally separate from the others, having its own liabilities, purpose, and property. Think of the series LLC as the big umbrella over lots of individual interests, similar to the way a corporation might have subsidiaries, but without the cost of setting up separate companies for each.

Each series must maintain separate accounting and, depending on the state, may be required to have a separate registered agent. The main reason to structure a company in this way is to maintain separate liability for each series: if one is sued, the others are unaffected. An example of a type of business that might benefit from this type of organization is a property management company. Each managed property has its own liability—separate from the others—while still being managed by the same overall LLC.

States Where Series LLCs Are Allowed

Series LLCs are currently permitted in Delaware, Illinois, Iowa, Nevada, Oklahoma, Puerto Rico, Tennessee, Texas, and Utah. You cannot form a series LLC in California, but if you've done so in another state that does permit it, you can register your series LLC to do business in California.

Basics of a Restricted LLC

Restricted LLCs can only be formed in Nevada. This type of LLC is used only for estate planning purposes, such as to gift property from one family member to another. A restricted LLC cannot make any distributions to members for 10 years after its formation, which can be seen as a drawback of this type of company. The amount a restricted LLC can distribute is also limited based on state law.

Because the assets of a restricted LLC can't be liquidated, they can't be taxed—which is its main benefit. To become a restricted LLC, the company must make this election in its articles of organization.

Differences Between Series and Restricted LLCs

A series LLC is a regular business LLC that is set up to hold several properties or interests underneath one LLC. A series LLC can make distributions as allowed by state law. A restricted LLC, on the other hand, is a vehicle created to transfer assets within a family and is not meant for doing business. A restricted LLC can distribute assets only after it has been in existence for 10 years.

Series LLCs and restricted LLCs have completely different uses and rules. Understanding the differences can help you choose which is most beneficial for your particular situation.

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.