By Nicholas P. Flint
In recent years, limited liability companies (LLCs) have emerged as the predominate form of business entity in Georgia and throughout the United States, outpacing the number of new corporations formed by a margin of nearly five to one. LLCs offer a number of benefits, including flexibility and ease of operation, limited liability, and pass-through taxation.
When it comes to limitation of liability, generally speaking the members of an LLC are not personally liable for the debts and obligations of the LLC. But while LLC members are not themselves personally liable for the LLC's debts, the assets owned by the LLC are still subject to being seized to satisfy the debts of the LLC. Therefore, particularly in the context of real estate, business owners will often form one LLC per parcel of real estate or project, in order to limit the liability to that property alone, since only the assets owned by that LLC would be subject to claims or lawsuits arising against that LLC. However, there are costs and administrative burdens associated with forming and maintaining a number of separate LLCs.
Forming an LLC in Georgia is relatively simple and filing fees are, comparatively, reasonable: $100 to file Articles of Organization and $50 per year to keep the LLC active. While these fees may sound inconsequential, studies show that they do in fact matter, due especially to the fact that these costs are very apparent at the time of formation, especially for new businesses attempting to cut down startup costs. Beyond that, filing and renewal fees add up when business owners choose to create multiple LLCs to segregate assets and reduce overall liability.To address this issue, a growing number of states are allowing business owners to form a single LLC, and then create a number of "series" within that LLC, with each series containing compartmentalized assets and liabilities ("Series LLCs"). To date, Georgia has not adopted legislation allowing for the Series LLCs.
Essentially, a Series LLC is a regular LLC with a twist. After creating a single LLC (the "Master LLC"), this Master LLC can set up an unlimited number of internal divisions, called "series" or "cells." Each series can maintain assets and liabilities separate and distinct from those held within other series. Further, each series may have a different business purpose, different members and managers, and different rights, powers, and duties.
Like an ordinary LLC, a Series LLC is a separate legal entity. Though similar in concept to establishing individual subsidiaries within a company, Series LLCs do not require new legal entities to be created in order to form a new series. States typically only require that the Master LLC's operating agreement allow the establishment of one or more series (i.e. the total number of series need not be determined at the outset).
Of course, there are filing fees to set up the Master LLC. However, in each state these fees are the same as those to file a regular LLC. The main difference is that there is no additional fee to create a new series within the Master LLC. This results in huge cost savings for business owners who would otherwise be creating multiple LLCs. Series LLC owners still must pay annual registration fees to keep the Master LLC active, but not for each individual series.
Georgia has consistently earned high marks regarding its business climate. It should come as no surprise, then, that Georgia is home to 18 Fortune 500 companies, with Atlanta as the city with the third-most Fortune 500 companies in the United States. Georgia's low corporate tax and fewer regulatory hurdles have made it a corporate magnet that has lured major companies like UPS, Newell Rubbermaid, NCR Corp., Mercedes-Benz, and PulteGroup in recent years.
While Georgia remains in the majority of states that disallow Series LLCs, one by one the more corporate-friendly states have been enacting statutes to allow for their formation. Given the popularity of LLCs in Georgia and considering the state's overall attractiveness to individuals starting and running businesses, Georgia should seriously consider joining these states in allowing Series LLCs.
Nick Flint is an associate attorney with Flint, Connolly & Walker, LLP who represents domestic and international clients on a variety of corporate and transactional matters, including mergers and acquisitions, joint ventures, private equity and venture capital transactions, financing and lending arrangements, and debt and equity offerings. In addition to his transactional work, Nick routinely serves as a general business and legal advisor to his clients, counseling on matters such as corporate governance, executive compensation, regulatory compliance, and commercial contracts.