When creating a company, it is important to consider how you will go about establishing your business. What kind of company you decide to make your business legally determines a great deal of how your company is taxed, your company’s rights as an entity, and more, so it is important to consider. We all know the big four; Sole Proprietorship, Partnership, Corporation, and Limited Liability Corporation (LLC). However, there are other, more nuanced ways to incorporate that can work to your advantage, especially as a construction business owner. Especially for contractors considering delving into the owner/developer side, going into the home-flipping business, or maintaining rental properties, an option you should know about is series LLC.
The Differences and Similarities of an LLC vs a Series LLC
A series LLC is like a regular LLC, only better. An LLC stands for Limited Liability Company and is a form of entity that can be registered as a business, the same as a corporation. Both a corporation and an LLC provide legal protection, meaning that only the company assets are available to satisfy company debt and liabilities, not your personal assets or the assets of another company you may own. That is why if you are in business, and especially the construction business, you need to be incorporated. Before 2009, if you owed multiple properties and wanted to limit any liability to just one property, you would have to form an LLC for each property. This could be done but it was expensive and a pain in the ass. Each LLC would have to file its own tax return, have its own bank account, and maintain its own set of books. Your options used to be to have all your properties owned by one LLC and face all your properties being available to satisfy the debts and liabilities of one property, or to create a new LLC for each property you acquired and deal with that expensive administrative nightmare.
The Series LLC Superpowers
Enter the series LLC, all the protection you want without the additional expense and administrative terrors of managing multiple LLC’s. The series LLC allows you to have several different LLC’s all under one Registered LLC. Once you register your series LLC with the sectary of state, you file a Doing Business As (“DBA”) certificate for each additional series you want to create. For example, if I own three properties: 1 Main Street, 2 Main Street, and 3 Main Street, and I form a series LLC called Butterfly Holdings, LLC. For each property, I would file a DBA. Here is an example of how that might read.
Butterfly Holdings, LLC d/b/a Series A 1 Main St., Butterfly Holdings, LLC d/b/a Series B 2 Main St. and Butterfuly Holdings, LLC d/b/a Series C 3 Main St. Each one of those series’ A, B & C is treated as its own LLC. If there is an accident that happens at 2 Main Street and Series B gets sued, the property owned by Series A and Serice C will not be assets that are available to satisfy any judgment taken against Series B. Each series becomes its own entity and has the same protections as any other LLC.
Stay Secure!
The series LLC is a terrific way to protect your business and keep your individual properties insulated from liability caused by other properties or issues. However, in order for the series LLC to keep that protection, you need to keep a separate set of books for each series. If you have QuickBooks, it is easy to open a new company book for each series and keep track of all the transactions for each property, especially if you are receiving rental income. You want to be able to deduct an expense you have spent on the property and reduce your tax liability, and this will allow that to happen. If you own multiple properties, even if you are leasing them to companies you own, or if you are considering becoming a real estate investor, a series LLC is the way to go. And here is the thing; You can always file a company as a series but add the individual series at a later date or not all, and it will just be a normal LLC.
In Conclusion
Creating your business as a series LLC can come with many internal and external benefits for your company. From saving the sanity of your administrative team, to reducing your tax liability all round, a series LLC is an often-overlooked option that may be the perfect fit for your companies. Know your options, all of them, on the front end and save yourself from some of the most common mistakes made by multi-business owners in the industry.
About the Author
Published author, award-winning lawyer, devoted wife and mother to three girls, and Owner and seasoned Managing Partner of The Cromeens Law Firm (TCLF), Karalynn Cromeens is a true jack of all trades. Karalynn is the Co-Founder of Morrell Masonry Supply and Owner of The Subcontractor Institute, an easy-access online educational platform for contractors. In addition to TCLF, and The Subcontractor Institute, she is also the Host of the rapidly growing educational construction podcast, Quit Getting Screwed - making cost-free industry insight available to contractors across the country. In 2021, Karalynn published two Amazon Best-Selling books - Quit Getting Screwed: Understanding and Negotiating the Subcontract and, in September, Quit Getting Stiffed: A Texas Contractor's Guide to Liens & Collections.
In the seventeen years she has practiced construction, real estate, and business law, Karalynn has reviewed and explained thousands of subcontracts. For years, she has tried saving companies that have signed problematic subcontracts and lost out on being paid for their work. Unfortunately, it was too late by the time they came to her; she could do nothing to help. She hated seeing clients lose money—sometimes their entire business—over language they did not understand and laws they did not know about. Watching these situations play out day after day was the driving force behind her two books, The Subcontractor Institute, and the firm's accessibility efforts. Providing education to contractors on a national level has become Karalynn's personal mission, and she is always doing what she can to help make it a reality.
