Why You Need to Reorganize Your Small Business into a Series LLC
(Editor’s note: Brian is Clear Counsel’s Communications Director. His prompts represent a conglomeration of inquiries submitted. If you have you have a question you would like answered in an upcoming video, email the inquiry to firstname.lastname@example.org)
Jonathan: Hello, my name is Johnathan Barlow. I’m a partner at Clear Counsel Law Group. Recently, this year, Google received a lot of press by announcing that they were reorganizing a parent company called Alphabet Inc., and that they were then going to essentially separate Google’s operations into separate subsidiary entities underneath Alphabet Inc.
I’m going to leave the reasons why Google did that to the talking heads, but let me explain some reasons why it makes sense to you, even as a small business, that may not be a multi-million dollar business, like Google, but a small business, would take advantage of this organizing into separate legal entities.
The most important reason why you might separate your business into separate businesses, is for asset protection. For instance, let’s think of a dentist’s office. The dentist has different aspects of their business that they might not think about. You have the actual practice of dentistry, the seeing of patients, billing patients for dental care. The dentist also owns a lot of equipment. He owns examination chairs, X-ray machines, a lot of equipment. He may also own his building where his office is located.
If you think about all three of those different aspects, each of those three could be separated into separate business entities to take advantage of asset protection between them. For instance, if he had a problem with one of his patients, and the patient began to look for collections against the dentist, the patient would be limited to the business receipts. They wouldn’t be able to take out the examination chairs. They wouldn’t be able to put a lien against the building. It becomes beneficial to separate these assets into different business entities.
There’s some interesting other techniques about this, and I think Brian, one of our readers here, has some questions about that. Brian, could I answer a question for you regarding that?
Brian: Sure. There’s some confusion as to if a single individual could create multiple companies under a series LLC. Wouldn’t they just look at all these LLCs, and go, “This is just one person.” Is that really going to work?
Johnathan: You’ve actually brought up a really good magic word, so to speak, in Nevada. Nevada has this fascinating technique, or business entity, called a series LLC. What it does is that, with the state of Nevada, you create one LLC, just one with the state, but under that LLC, you then create separate series, and you could have series one, series two, series three, series four, and so let’s use the example of the dentist.
He’s going to create Dentist LLC, and in series one, he’ll put his business practice. In series two he puts his dental equipment. In series three he puts the ownership of the office building. Each of those series is treated as if it was a separate LLC with asset protection between each one, and yes, one single owner can do that and take advantage of the effect of having different business entities, but using just one LLC through the different series. Does that answer that question a little bit?
Brian: It does. I have another question if that’s okay?
Johnathan: Go for it.
Brian: How many of these series LLCs am I allowed to have? Is there a cap?
Johnathan: If you create one series LLC, how many different series could you have underneath that, is that …
Brian: Correct. Yes.
Johnathan: The statute in Nevada doesn’t define that answer. The statute doesn’t say you can only create 10 series, so theoretically, until somebody tells us otherwise, you can create as many series as you want, and they don’t all have to even be related to each other.
Again, talking about the dentist, he may have three series to go with those three aspects of his dental practice, and series four actually could be his investment property that he owns, that he rents out to Brian, to you Brian.
Brian: Big mistake.
Johnathan: It would probably be a big mistake to have you as a tenant, but let’s assume that we don’t you, when you fall down the stairs, for the purpose of suing the dentist, we don’t want you getting into his dental assets, and so that’s why we separate these liabilities between the different LLCs.
Even a small business in Nevada can take advantage of these really powerful techniques to separate liability, separate assets between different business entities, using a series LLC, or you can use different LLCs, whatever works best for you. Nevada has this really unique tool of using the series LLC. It’s very flexible, and it’s an awesome tool. It can be used by all Nevada business entities.
For more information on this, I encourage you to go to our blog on clearcounsel.com and read more about the series LLC, and about the Alphabet Inc. analysis, when Google transferred to that.