How to Create a Series LLC in South Dakota

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, providing protection across different business ventures or asset holdings under one umbrella entity.

Does South Dakota Allow Series LLCs?

Yes, South Dakota permits the formation of Series LLCs. The authorization for Series LLCs is governed by the South Dakota Codified Laws, specifically under Chapter 47-34A, which outlines the requirements and provisions for forming and operating a Series LLC. It is crucial to include specific language in the formation documents to establish the series structure.

How a South Dakota Series LLC Works

In a South Dakota Series LLC, the master LLC acts as the overarching entity that controls the individual series. Each series can hold separate assets and liabilities, and the debts or obligations of one series do not affect the others. This separation is maintained through meticulous recordkeeping and adherence to structural requirements, ensuring that each series operates independently.

Benefits of Forming a Series LLC in South Dakota

• Cost Efficiency: Forming a Series LLC can be more cost-effective than establishing multiple traditional LLCs, as it reduces the need for multiple filings and associated fees.
• Asset Segregation: Each series can hold distinct assets and liabilities, providing protection and isolation from the risks associated with other series.
• Administrative Flexibility: The Series LLC structure allows for streamlined management and administration, as the master LLC can oversee multiple series under one entity.

Limitations and Risks of a South Dakota Series LLC

• Legal Uncertainty: The Series LLC is a relatively new entity type, and its recognition and treatment can vary across jurisdictions, leading to potential legal uncertainties.
• Banking and Lending Challenges: Some financial institutions may be unfamiliar with Series LLCs, complicating banking and lending processes.
• Tax Complexity: Navigating the tax obligations for each series can be complex, requiring careful compliance with state and federal tax laws.

Who Should Consider a South Dakota Series LLC?

A Series LLC may be suitable for businesses involved in real estate, asset holding, or intellectual property management, where asset segregation is beneficial. However, for simpler business structures or those operating in multiple states, a traditional LLC might be more appropriate due to the potential legal complexities of a Series LLC.

Step-by-Step: How to Create a Series LLC in South Dakota

Step 1: Choose a Name for the Series LLC

The name of the Series LLC must comply with South Dakota'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 name of the parent LLC.

Step 2: Appoint a South Dakota Registered Agent

A registered agent must be appointed for the Series LLC. This agent must be a resident of South Dakota 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 South Dakota Secretary of State. This document includes essential information such as the LLC's name, registered agent, and management structure. Filing can be done online or by mail.

Step 4: Include Series LLC Language

It is imperative 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 inability to form distinct series.

Step 5: Draft a Series-Compliant Operating Agreement

A comprehensive operating agreement is crucial for internal governance. It should outline the management structure, asset and liability separation, and operational procedures for each series.

Step 6: Establish Individual Series

Individual series are created internally through documentation and recordkeeping. Each series should maintain separate records to ensure liability protection and asset segregation.

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 operational needs and tax obligations.

Step 8: Open Separate Bank Accounts

To maintain financial separation, each series should have its own bank account. This prevents the commingling of funds, which is essential for liability protection.

Step 9: Comply With South Dakota Tax Requirements

The Series LLC must comply with South Dakota's tax requirements, including any applicable state taxes. Each series may have its own reporting and payment obligations.

South Dakota Series LLC Filing Fees and Costs

The filing fee for the Certificate of Formation is $150. Additional fees may apply for each series, and ongoing costs include annual report fees and any applicable state taxes.

South Dakota Franchise Tax and Series LLCs

South Dakota does not impose a franchise tax on LLCs. However, each series must comply with state tax reporting obligations, which may vary based on their activities.

Ongoing Compliance Requirements for South Dakota Series LLCs

Series LLCs in South Dakota must file annual reports and maintain accurate records for each series. Compliance with state laws and regulations is essential to maintain liability protection.

Common Mistakes When Forming a Series LLC in South Dakota

• Missing Required Series Language: Failing to include series authorization language in the formation documents can prevent the establishment of series.
• Poor Recordkeeping: Inadequate documentation can jeopardize liability protection.
• Mixing Assets Between Series: Commingling assets can lead to liability exposure across series.

Series LLC vs Traditional LLC in South Dakota

A Series LLC offers a flexible structure with potential cost savings and asset protection benefits, while a traditional LLC may be simpler and more straightforward for businesses not requiring asset segregation. The choice depends on the specific needs and complexity of the business.

Additional Resources

• South Dakota Secretary of State
• Business Services Division
• South Dakota Codified Laws
• South Dakota Department of Revenue
• Contact: Phone: (605) 773-4845, Email: sdsos@state.sd.us

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