How to Create a Series LLC in Kentucky

What Is a Series LLC?

A Series LLC is a unique form of a limited liability company that allows for the creation of multiple, distinct series within a single LLC. Each series operates independently, with its own assets, liabilities, and members. This structure allows for the segregation of assets and liabilities among the series, providing a flexible and cost-effective way to manage multiple business ventures under one umbrella entity.

Does Kentucky Allow Series LLCs?

Yes, Kentucky permits the formation of Series LLCs under its state laws. The authorization for Series LLCs is provided by the Kentucky Revised Statutes, specifically under KRS § 275.010 et seq. It is essential to include specific language in the formation documents to establish a Series LLC, ensuring that the series structure is recognized legally.

How a Kentucky Series LLC Works

In a Kentucky Series LLC, the master LLC acts as the overarching entity that controls the individual series. Each series can hold its own assets, incur liabilities, and have separate members and managers. The liability of each series is isolated, meaning that the debts and obligations of one series do not affect the others. Proper recordkeeping and adherence to structural requirements are crucial to maintaining this separation.

Benefits of Forming a Series LLC in Kentucky

• Cost Efficiency: Forming a Series LLC can be more cost-effective than creating multiple separate LLCs, as it reduces the need for multiple filings and administrative tasks.
• Asset Segregation: Each series can hold distinct assets and liabilities, protecting them from the risks associated with other series.
• Administrative Flexibility: The structure allows for streamlined management and operations across different business ventures.

Limitations and Risks of a Kentucky Series LLC

• Legal Uncertainty: The Series LLC structure is not universally recognized across all jurisdictions, which may lead to legal challenges.
• Banking and Lending Challenges: Some financial institutions may be unfamiliar with Series LLCs, complicating banking and lending processes.
• Tax Complexity: Navigating tax obligations for each series can be complex, requiring careful compliance with state and federal tax laws.

Who Should Consider a Kentucky Series LLC?

A Series LLC is ideal for businesses that manage multiple assets or ventures, such as real estate investment companies, asset holding entities, or intellectual property portfolios. However, for businesses with simpler structures or those operating in jurisdictions that do not recognize Series LLCs, a traditional LLC may be more appropriate.

Step-by-Step: How to Create a Series LLC in Kentucky

Step 1: Choose a Name for the Series LLC

The name of the Series LLC must comply with Kentucky's naming requirements, including the use of "Limited Liability Company" or abbreviations like "LLC." Each series within the LLC should have a distinguishable name that includes the parent LLC's name.

Step 2: Appoint a Kentucky Registered Agent

A registered agent must be appointed for the Series LLC. This agent must be a resident of Kentucky or a business entity authorized to do business in the state, responsible for receiving legal documents on behalf of the LLC.

Step 3: File the Certificate of Formation

The Certificate of Formation must be filed with the Kentucky Secretary of State. This document includes essential information such as the LLC's name, registered agent, and principal office address. Filings can be submitted online or by mail.

Step 4: Include Series LLC Language

It is crucial to include specific language in the Certificate of Formation that authorizes the creation of series within the LLC. Failure to include this language may result in the series structure not being legally recognized.

Step 5: Draft a Series-Compliant Operating Agreement

An operating agreement should be drafted to outline the internal governance of the Series LLC. This document should detail the separation of assets and liabilities among the series and establish management protocols.

Step 6: Establish Individual Series

Individual series are created internally within the LLC. Proper documentation and recordkeeping practices must be maintained to ensure the legal separation of each series.

Step 7: Obtain EINs (Parent and Series, If Needed)

An Employer Identification Number (EIN) is required for the parent LLC and may be necessary for each series, depending on their operations and tax obligations.

Step 8: Open Separate Bank Accounts

Separate bank accounts should be opened for each series to maintain financial separation and prevent the commingling of funds, which could jeopardize liability protections.

Step 9: Comply With Kentucky Tax Requirements

The Series LLC must comply with all applicable state tax requirements, including registration, reporting, and payment obligations for each series.

Kentucky Series LLC Filing Fees and Costs

The filing fee for the Certificate of Formation is $40. Additional fees may apply for amendments or other filings related to the series. Each series may incur separate costs depending on its operations.

Kentucky Franchise Tax and Series LLCs

Kentucky does not impose a franchise tax on LLCs. However, each series must comply with state tax obligations, which may include income tax or other applicable taxes.

Ongoing Compliance Requirements for Kentucky Series LLCs

Kentucky Series LLCs must file an annual report with the Secretary of State and maintain accurate records for each series. Compliance with state laws and regulations is essential to preserve liability protections.

Common Mistakes When Forming a Series LLC in Kentucky

• Missing Required Series Language: Failing to include series authorization language in the formation documents can invalidate the series structure.
• Poor Recordkeeping: Inadequate documentation can lead to legal challenges and loss of liability protection.
• Mixing Assets Between Series: Commingling assets can compromise the liability separation between series.

Series LLC vs Traditional LLC in Kentucky

A Series LLC offers a flexible structure for managing multiple ventures under one entity, with cost and administrative benefits. In contrast, a traditional LLC is simpler and may be preferable for single-business operations or in jurisdictions that do not recognize Series LLCs.

Additional Resources

• Kentucky Secretary of State Main Page
• Kentucky Revised Statutes
• Kentucky Department of Revenue
• Contact Information: Phone: (502) 564-3490, Email: business@ky.gov

This article provides general information about Kentucky LLC formation requirements under the Kentucky Revised Statutes. It is not intended as legal advice. Persons forming an LLC should consult with a private attorney regarding their specific circumstances.