Ohio Simplifies Process To Register Series LLCs
By Nils Peter Johnson
Johnson & Johnson Law Firm
YOUNGSTOWN, Ohio – On Feb. 11, individuals familiar with the online process of registering a Limited Liability Company with the Ohio secretary of state noticed that the process had changed. Now, with a simple attachment to the articles of incorporation, a series LLC might be formed.
Series LLCs generally afford the same asset protection benefits of having several distinct LLCs. Whereas having several distinct LLCs requires a public filing for each LLC, an individual incorporating a series LLC with one filing establishes the ability to spawn several “series” or sub-LLCs of the parent LLC without additional public filings.
For example, one might incorporate “Youngstown Ohio Series LLC” with the intention of acquiring several rental properties in the area. Each property acquired might then be designated as being owned as a separate series of Youngstown Ohio Series LLC. Specifically, 123 Main St. might be owned by Series One of Youngstown Ohio Series LLC, while 456 Main St. might be owned by Series Two of Youngstown Ohio Series LLC with each series being isolated from the liabilities of the other.
Each series of Youngstown Ohio Series LLC might also describe separate rights with respect to specific property within each series.
So is there any reason NOT to establish a series LLC? Or are traditional LLCs still a viable vehicle?
In my opinion, a traditional LLC still makes the most sense for the average real estate investor.
In the example above, if 123 Main St. and 456 Main St. are the only properties ever to be acquired, and are to involve identical investors, it would be most practical to simply establish Main Street Holdings LLC as a non-series LLC and to acquire both properties in Main Street Holding LLC’s name. A simple operating agreement would then describe how Main Street Holdings LLC would be managed among the investors. An even more conservative approach might have each property titled in a separate LLC.
By contrast, a series LLC makes sense to those investors anticipating a high volume of future transactions with several unique pools of investors. In this setting, the cost of maintaining each unique series (i.e., bookkeeping and adequately documenting each series as plainly separate from the rest) might be more appropriate. And although these types of formalities are still largely required of a traditional LLC, the series’ comparative lack of public filings arguably places a larger onus on the need for observing such formalities.
To be sure, it is by not observing these formalities that liability shields are sometimes lost. As with any new legislation, it will take time for courts, practitioners and taxation authorities to adjust to series LLCs.
In the meantime, it is wise to consult with professionals before deciding whether a series LLC makes business sense.
Copyright 2023 The Business Journal, Youngstown, Ohio.