An Initial Inquiry into the Federal Tax Classification of Series Limited Liability Companies

Abstract:     
Series limited liability companies are beginning to rise in popularity and use, despite uncertainties regarding their federal tax classification. This article examines two well-developed series LLC statutes to determine the proper federal tax classification for the LLC itself and for each series organization within it. Based on a closer look at and a comparison between the Delaware and Illinois series LLC acts, the authors determine that, unlike those in Delaware, each Illinois series organization may clearly be treated as a stand-alone business entity for federal tax purposes. To support that position, the authors rely on several factors, including: the statute's declaration that the series is an entity separate from the parent LLC; the nature, characteristics, and powers associated with each series; and the ability to distinguish the series from forms of direct investment by the parent LLC, such as joint business enterprises and investment trusts. Overall, the authors concluded that the Illinois series LLC is both a clearly defined and yet flexible business entity that allows each series to conduct its own business - or possibly function as a component of a larger business - based on the decision of the members of the LLC and of each of its series.

Accepted Paper Series