The limited liability company (LLC) has been an incredibly popular business structure for decades, but in the grand scheme of things, it’s still a relatively recent addition to the American business landscape.
There are actually still new variations of the LLC popping up across the country, with the most popular one being the series LLC.
The series LLC is only available in certain states, including Tennessee. A series LLC is a collection of LLCs that are grouped under one parent LLC. This enables businesses to separate different parts of the company into separate LLCs, allowing them to isolate the liabilities of each segment from the others.
Because the series LLC is still relatively new in some states, we get a lot of questions about what exactly the series LLC is, and how you can form one. That’s why we decided to write these articles, which break down how the series LLC formation process works in each state.
If you’re interested in forming a series LLC in Tennessee, read on to find out how it’s done.
That said, if you’re looking for a time-tested way to protect yourself and personal assets as a business owner, the traditional LLC is the way to go. You can either form it yourself or through an LLC service.
What Is a Series LLC?
Let’s start by briefly covering what a series LLC actually is. In general, a series LLC is exactly what it sounds like ― it’s a collection of LLCs that operate under the umbrella of a master LLC. While each LLC in the series is part of the larger company, this business structure also keeps each LLC financially insulated from the others. In theory, this means that a lawsuit against one of the LLCs should have no effect on the others in the series.
Each LLC in a series has the same limited liability protections that a standard LLC has, meaning that if you’re sued, creditors can only come after your business assets rather than pursuing your personal possessions. While a series LLC does still protect your personal car, house, bank accounts, etc., it also protects the other LLCs in the series from the lawsuit. In other words, creditors can only pursue the assets of one LLC, rather than the entire series.
How Can I Form a Series LLC in Tennessee?
Choose a Name for Your Series LLC
The first step to forming any type of LLC is to first select a name for your new business. You should choose a name that is memorable, and also one that briefly describes what your business does, or what your organization stands for. You will also need to run a business name search to make sure your chosen name is available in Tennessee, and isn’t already being used by another company.
Also, you’ll need to include either the phrase “limited liability company” or the letters “LLC” in your business name. Finally, you cannot include any terms that refer to specific business types ― like “bank” or “hospital” ― unless you actually run one of those businesses, and you also can’t use any words that refer to other business types, such as “incorporated” or “inc.”
Additionally, it’s important to note that in Tennessee, each segment of your series LLC should include the parent LLC’s name. However, each LLC in your series must have a different name from the others. For example, if your parent LLC is called “Scott’s Foods,” and you want to differentiate your fine-dining LLC from your fast-casual LLC, you could name these segments “Scott’s Foods Dining LLC” and “Scott’s Foods Fast LLC.”
For more info on naming an LLC ― whether that’s a series LLC or a traditional LLC ― check out our comprehensive guide to naming an LLC.
Designate a Registered Agent
Next, you’ll need to choose a registered agent for your series LLC. The registered agent must have an office located in Tennessee, and they must be available to receive document deliveries from the state during all standard business hours.
You don’t need to worry about designating different registered agents for each segment of the LLC, as you can have the same registered agent for every LLC in the series if you want to.
Prepare and File the Articles of Organization
In some states, there are two different forms for creating traditional LLCs and series LLCs, but in Tennessee, both types of LLCs use the same “Articles of Organization” form. The major difference in the preparation of this document is that you’ll need to indicate that your LLC is a series by including this designation in Section 3, and also checking the series LLC box in Section 14.
The Tennessee Articles of Organization is a relatively simple form, although it is a bit lengthier than most states’ formation documents. You’ll need to tell them your business name and physical address, indicate that you are forming a series LLC, provide them with the name and address of your registered agent, and decide what month you want your fiscal year to close in.
You should also indicate when you want your formation to take effect, choose your managerial structure, and tell them how many owners your series LLC has. Then, you should inform the state whether your business is perpetual, or if you have a predetermined dissolution date. Finally, your LLC organizer will need to sign and date the form.
When your Articles of Organization are ready, you can file them with the Secretary of State’s office, along with your filing fee. This fee is $50 for each owner of your series LLC, with a minimum of $300 and a maximum of $3,000
Acquire an EIN
Next, you should obtain a federal tax ID number known as an Employer Identification Number (EIN) from the Internal Revenue Service for each LLC in your series. The EIN is essentially a Social Security Number for your business, as it is a nine-digit numerical code that you can use to identify your business on tax forms, and it also helps you open business bank accounts and hire employees.
It’s quite easy to get an EIN from the IRS. All you need to do is fill out the free form located on the IRS website, and you’re good to go. You will receive your number immediately upon filing.
Create a Series LLC Operating Agreement
There is no legal requirement dictating the creation of an operating agreement in Tennessee, but we still strongly recommend it to all of our readers. An operating agreement describes many aspects of how your series LLC will operate. In this agreement, you’ll outline what the different segments of your series LLC are, indicate the roles of each member/owner, detail the owners’ voting rights, and explain the financial contribution and allocation plans.
You should also indicate whether you want your business to be managed by its members or by a manager, discuss how an owner can be replaced if necessary, and outline a dissolution procedure in case you ever need to close up shop.
In addition, the operating agreement is a great place to describe the purpose of each individual LLC in your series. You probably don’t need to create a separate operating agreement for each LLC, but it’s a good idea to explain in detail what each one is for in this document.
Create a Financial Infrastructure
It’s crucial for any LLC to open a business bank account, as this helps you maintain the separation of personal and business finances that is required of all formal business entities. However, there’s an extra layer to this step for series LLCs, as you’ll need to open a bank account for the series’ parent LLC, as well as for each of the separate LLC segments under its umbrella.
If you fail to open a separate bank account for each segment, you will run the risk of losing the isolated liability of each LLC in the series. You need to be able to prove that these segments are truly separate if you want to maintain the liability shields between them.
In addition, this would be a good time to either hire an accountant or purchase accounting software for your series LLC. For traditional LLCs that don’t have particularly complex accounting needs, it’s usually sufficient to use accounting software, but a series LLC is a bit more complicated, and we therefore prefer hiring an accountant to make sure everything is done correctly.
Obtain Licenses and Permits
Every LLC that operates in Tennessee is required to register a franchise and excise tax account with the state’s Department of Revenue. For series LLCs, this actually means registering the master LLC and each LLC in the series separately. These registrations are relatively inexpensive, costing just $15 each, and your fees must be paid to your county or municipal clerk, who will obtain your business licenses on your behalf.
Aside from this, Tennessee does not have a general business license, but they do provide licenses and permits for a variety of industries. To determine whether you require any professional licensing, we recommend visiting the “Licensing and Regulations” page on the Tennessee Department of Commerce and Insurance website.
Keep in mind that you may also need to get licenses or permits from your county or municipal government agencies, so make sure to check with the relevant entities in these jurisdictions.
Understand Maintenance Requirements
Tennessee requires all LLCs to file an annual report, which you can submit via the Secretary of State’s website. Unlike most states with series LLC statutes, Tennessee actually requires you to submit a separate annual report for your parent LLC and each LLC within your series.
These reports are how you keep the state updated regarding any changes made to your business since the previous filing. In general, you’ll need to inform them of a change to your business name or address, the name or address of your registered agent, and any changes to your ownership group.
Just like with the Articles of Organization, Tennessee charges $50 per LLC owner, with a $300 minimum and a $3,000 maximum for each LLC in your series. As you can see, annual reports can get very expensive for Tennessee series LLCs.
Can I Hire Someone to Form My Series LLC?
When forming a series LLC in Tennessee, you generally have two options. You can tackle the DIY route, or you can hire an attorney. In some other states with series LLCs, you can form one by using Northwest Registered Agent’s formation service, but unfortunately they do not offer this service in Tennessee.
Of these two options, we prefer hiring a lawyer. Yes, this can be an expensive route, but the series LLC is rather complex, so we think it’s definitely a good idea to hire a reputable business attorney to create your formation documents.
If you’re supremely confident in your abilities to form a compliant series LLC, we won’t stop you from giving it a shot. However, for the vast majority of our readers, hiring a lawyer is the smarter option.
The process of forming a series LLC in Tennessee isn’t too terribly different from the formation process for a standard LLC. However, you do need to make sure that you designate your LLC as a series in the Articles of Organization, and also acquire tax registrations for each individual LLC.
At the end of the day, if you want to skip the hassles and worries that come with forming your own Tennessee series LLC, you always have the option to hire an attorney to handle it for you.
We hope this article helped you develop your understanding of how to form a series LLC in Tennessee!