Can you convert an LLC into a Series LLC?

Yes and No. Converting your Limited Liability Company (LLC) to a Series LLC is possible in only some states of the U.S. at this time. 

These states include:

• Kansas
• Delaware 
• Illinois
• Iowa
• Nevada
• Oklahoma
• Tennessee
• Texas
• Utah

In recent years, many businesses in the U.S. have started converting their LLCs to Series LLCs. 

This is because a Series LLC provides an umbrella of protection over other business entities of the company, making them out-of-reach of creditors. 

In the case of a creditor trap, where the LLCs are not able to pay the creditor, the court can take control of the LLC, making it pay back the debt. 

Why Turn LLC to Series LLC?

If there is a single LLC in place, all profit of the LLC will first go to the debt repayment. 

But when the LLC is divided into multiple LLCs, also known as Series LLC, the other divisions are not affected, and their profits go to the members of the LLC. Only the affected division’s profits go to debt settlement. This means the other businesses can flourish like they were before.

Another reason to get the Series LLC is to avoid excessive taxation on all of your LLC companies.

With a Series LLC, your primary LLC will be taxed and as all other are its subsidiaries, you won’t have to pay separate taxes for each one of them.

The third reason lawyers and legal experts recommend series LLC companies is that these are easier to manage and reduces your formation cost.

How to Turn LLC to Series LLC?

There are two ways to form an LLC.

1. Form a new Series LLC under your name.
2. Convert your old LLC into a Series LLC

If you are in any of the following states we’ve mentioned above.

Documents Need for Conversion

• Articles of Organization
• Operating Agreement
• State-issued Amendment Form
• Fees submission

You can convert your LLC into a series LLC. To convert, you will need two documents – the Articles of Organization and the Operating Agreement.

Moreover, you will also need a state-issued form that requires the necessary information to complete the process. 

Once all documents are available, you will have to submit them with the state government. 

The amendment should clearly state that no series LLC division is liable for debt settlement or liabilities of the other LLC. This is necessary to ensure that in case of a debt payment of one LLC, all other LLCs remain operational as usual.

What if your state doesn’t allow Series LLC?

States that are not listed above do not allow Series LLC formation. So, in that case, you can create a Series LLC in another state, and then you can operate the ‘foreign LLC’ within the state boundaries. 

Let’s say California doesn’t allow forming a Series LLC within its boundary. So, you can form a Series LLC in Texas and then operate it in California as a ‘Foreign LLC.’ 

Note: You will have to check with your state government if you are eligible to operate a foreign LLC in the state. Most states have different rules and regulations for foreign LLCs.

The Decision to Convert

The decision to convert your LLC into a Series LLC is a tough one. 

All members of the LLC must make a rational decision after getting advice from legal experts. 

Converting to a Series LLC is necessary if your business is expanding and offers new services that have their own suppliers and customer bases. 

With Series LLC registration, all LLCs will have their separate allocation of assets and liabilities and the creation of separate books and accounts. 

You should note that converting your LLC to a Series LLC is not possible if:

• Your LLC is already under a debt
• If there is a lawsuit going against your LLC in the local court
• If your LLC has not paid state taxes
• If the government has put restrictions on your LLC for some reason
• If the state laws have changed and you no longer can convert into a series LLC

If that is the case, you can always liquidate your LLC and create a new Series LLC from scratch.

Fees for Series LLC

The fees of creating an LLC varies from one state to state. In Delaware, you can register your LLC for $200. To amend the LLC agreement and turn your LLC into a Series LLC, you will have to pay $200 more. Similarly, in Illinois, the fees for registering an LLC is $500. California has the highest charges for registering an LLC at $800.

Before registering the LLCs, you will have to provide a unique name for each series, a statement of the assets, and members affiliated with it. Similarly, the Texas series LLC formation fees is $300 + $5 for a Certificate of status registration.

Taxes for Series LLC 

Once your Series LLC is registered, you will have to pay a fixed amount each year as taxes. 

The taxes can be somewhere between $100 and $1000 depending on the state where you live. For some states like Delaware, there is one tax for all the LLCs within the Series LLC. 

However, depending on the yearly turnover, some Series LLCs will be required to pay additional tax. If your series LLC is to handle real-estate, you may be liable only to pay a single tax for all the units in the series LLC.

Final thoughts

Creating your LLC into a Series LLC is easy. However, before you can create a series LLC, you must be familiar with the rules of the state where your business is based.