Series vs. Restricted LLC: What’s the Difference?

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.

What is 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. 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 a series LLC business structure 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.

Series LLCs are recognized in certain states and U.S. territories, including Delaware, Illinois, Iowa, Nevada, Oklahoma, Tennessee, Texas, Utah, and Puerto Rico. While you cannot form a series LLC in California, you can register your series LLC to do business in California if you've done so in another state that does permit it.

What is 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.

Series LLCs vs. Restricted LLCs: Differences and Similarities

The biggest difference between restricted and series LLCs is that restricted LLCs are vehicles created to transfer assets within a family and are not meant for doing business. Even though these types of LLCs have completely different uses and rules, understanding more of the similarities and differences can help you choose which is most beneficial for your particular situation.

Formation and availability

As noted, restricted LLCs are only available in the state of Nevada, while series LLC formations are allowed in multiple states. This is one of the critical differences between a restricted and series LLC. If you don’t live or do business in the state of Nevada, you’ll likely never need to file a restricted LLC.

However, the process for forming a series LLC or restricted LLC in Nevada, is relatively similar. For both business entities, you’ll select the LLC formation type when you file your LLC’s articles of organization with your state’s business regulation authority (typically your Secretary of State’s office).

If you’re forming a series LLC in a state other than Nevada, know that the process can vary from state to state, so be sure to check with your state’s business regulation authority to determine what the filing requirements are. You may also want to consider consulting an attorney to help you navigate the complexities of setting up your series LLC.

Structure and liability

Series LLCs and restricted LLCs are structured very differently. A series LLC is a tiered structure wherein a number of separate businesses or assets are grouped together. Even though they are part of the same LLC, each series is a separate entity with no joint legal liability. That means, if one of the series in the LLC is sued, the others in the series are protected. Instead of forming multiple LLCs with multiple sets of paperwork, the owner of a series LLC only needs to file a single annual report for the master LLC each year.

A restricted LLC, meanwhile, is structured more like a traditional LLC. It does not separate assets into separate business entities, and carries the same limited liability protections as a traditional limited liability company. If you form a restricted LLC to distribute corporate assets to family members, your family members won’t be personally liable for any legal disputes affecting the business assets in the LLC. 

Distribution restrictions

Restricted LLCs get their name from the restrictions placed upon them when it comes to distribution of assets. Members of a restricted LLC can not distribute assets for 10 years after the restricted LLC is formed, and the assets themselves won’t be taxed during this time.

Series LLCs, on the other hand, don’t have sweeping restrictions on distributions. There may, however, be state-specific restrictions on how assets are distributed, so it’s important to check with your local office to understand the series LLC laws within your state.

Benefits

Series LLCs and restricted LLCs actually share many benefits. For example, as with any limited liability company, they provide liability protection for members to ensure personal assets are shielded from any debts incurred by the LLC. And both benefit from pass-through taxation, meaning that the members of the LLC don’t pay corporate tax on profits. Instead, they pay taxes on their earnings via their personal income tax return.

Unlike restricted LLCs, however, series LLCs don’t enjoy a tax deferral period. Instead, a series LLC’s main benefit is the unique liability protection given to the segregated portfolio companies organized under the same single LLC.

Which LLC formation is right for you?

It’s unlikely that you would need to choose between a series LLC and restricted LLC since they serve very different purposes. If you’re a business owner looking for increased liability protection for separate business assets, then forming a series LLC could be an attractive option for you. If you live in Nevada and are searching for a way to transfer assets between family members, a restricted LLC may offer tax benefits in your situation.

Rather than choose between a series LLC and restricted LLC, a better question may be whether a regular LLC is a better fit for you than either of these specialized limited liability companies. An experienced attorney can help you determine which business entity is the right fit for your particular situation.

FAQs

Do I need a special filing to create a series LLC or restricted LLC?

No, neither series LLCs nor restricted LLCs require a special filing. You indicate your intention to file as a series LLC or restricted LLC when filing the articles of organization for your LLC. In Nevada, this can be found in box 9 of the LLC formation form.

Can I add series to a series LLC after it’s formed?

Yes, series LLCs allow for the addition of new series to the master LLC at a later time. Laws can vary from state to state, but typically this involves filing an articles of amendment. Check with your state office for specifics on what documentation is needed to add a series to your master LLC.

Can I convert a traditional LLC to a series LLC or restricted LLC?

It may be possible to convert a regular LLC to a series LLC or restricted LLC, depending on where you live. Remember: series LLCs aren’t recognized in every state and restricted LLCs are only available in Nevada.

If you want to convert an existing LLC into one of these specialized LLCs, it may be a good idea to consult an attorney to make certain you meet the requirements and set things up correctly. 

What benefits do series LLCs have over traditional LLCs?

Series LLCs can offer a few benefits over regular LLCs. For starters, series LLCs can protect multiple business entities from one another, even if all of those businesses fall under the umbrella of the same LLC. In this sense, forming a series LLC is similar to forming multiple LLCs, one for each individual asset. 

However, unlike with multiple LLCs, series LLCs may allow you to use the same registered agent for each series, and only require you to file one tax return for the master LLC.