Delaware Series LLC fund
Series limited liability companies (Series LLC) are an efficient tool for structuring investments and business in the US market. This is the cheapest and fastest way to establish a legal structure for a fund or one-off investment, with the ability to start operating in just one day with a complete set of documents.
About the company
Structure
Series companies represent a hierarchical umbrella fund structure consisting of a master company (Master LLC) and autonomous cell sub-funds (Series) it creates.
For example, in Delaware the creation of series companies is regulated byDelaware Code §18-215.
Management
Each series may independently appoint its managers and have employees — everything like a regular company, but without the need for compliance and interaction with government authorities. This makes series a convenient tool for entering the US market for persons without local residency and SSN.
Application
Series companies are used to optimize management of multiple assets or projects within a single legal structure. This model is in demand in sectors requiring risk isolation and reduced administrative costs.
| Тип использования | Преимущества |
|---|---|
| Инвестиции в недвижимость | Каждый объект оформляется на отдельную серию, что позволяет разделять денежные потоки и передавать контроль над недвижимостью через продажу серии |
| Венчурные инвестиции | Под каждую компанию-таргет учреждается собственная серия, что упрощает структурирование сделок и управление портфелем |
| Управление активами | Возможность принимать средства третьих лиц и управлять ими без издержек на лицензирование и комплаенс |
Series are most popular in capital markets, as they allow accepting third-party funds and managing them without licensing and compliance costs. Investment funds use series as SPVs, each with its own investors and strategy.
Taxation
Each series may independently choose its tax regime — partnership or corporation, depending on investor objectives and business specifics.
Partnership regime (Pass Through)
If a series chooses partnership regime, it becomes a pass through structure for tax purposes. In this case the series itself is exempt from federal corporate tax, but its investors must file their tax returns based on formK-1 (Form 1065)prepared by the company (Purpose of Schedule K-1), which indicates the share of profit or loss.
In other words, the investor will pay taxes only upon receiving profit from the series' activities, and only the laws of their residency will apply, not US laws. This structure allows the fund to achieve tax neutrality, which is why it is the default choice.
Corporation regime (C-Corp)
If the series chooses corporation regime (C-Corp), it becomes an independent taxpayer and must payfederal corporate tax at a rate of 21%on profit. After paying tax, remaining profit may be reinvested within the series, and dividend payments to participants are taxed at 0 to 23.8%.
This leads to double taxation, but such a regime may be beneficial for high-profit series that do not plan to withdraw capital — for example, private funds.
Regardless of the series' tax regime, the master company must pay franchise tax of $300 —Delaware Code, § 18-1107.
Also for each registered series$75 per yearis paid.
Payment must be made by June 1 each year, and late payment triggers automatic assessment of a $200 penalty plus interest for each month of delay.
Finally, non-US resident participants must pay taxes on income received from the series' activities in the US (for example, when selling an asset) at a rate of 30% or according to tax treaties.
Compliance
Conditions for exemption from SEC registration
Series may function as investment funds without the need for licensing and registration of an investment memorandum with the SEC (US Securities and Exchange Commission) if they meetone of the following exceptions:
Exception 3(c)(1) - Fund with limited number of investors
Main conditions:
- Up to 100 accredited investors (meetingSEC criteria)
- For venture funds: up to 250 investors with assets under $12 million
Look-through rule: if an investor is a legal entity created specifically to invest in the series, all its ultimate beneficiaries are counted.
Investment portfolio requirements:
- At least 80% of capital must be invested in securities of early-stage private companies
- Target companies: startups at pre-seed, seed, Series A or Series B stages
- Companies must not be traded on public markets or be subsidiaries of public holdings
Exception 3(c)(7) - Fund for qualified purchasers
Main conditions:
- All investors must be qualified purchasers:
- Individuals: investment assets from $5 million
- Institutional investors: assets from $25 million
- Number of investors: no more than 1,999
Minimum compliance requirements
Even when exempt from registration, each series must comply with:
- Annual update of beneficiary information inFinCENaccording to Corporate Transparency Act
- Timely filing of tax returns (depends on chosen tax regime)
- Payment of franchise tax by the master company
Additional requirements:
- For series with corporation status: separate tax reporting
- When managing third-party assets: annual update of form ADV
- Regular internal audit of compliance procedures
Administration
Registration
Series LLC registration is conducted remotely, without the need for personal presence. Registration requires the following documents:
- Foreign passport of beneficial owner
- Proof of residential address (bank statement or utility bill no older than 3 months)
- Information about planned company activities
Annual administration
To maintain the company in active status, it is necessary to:
- Timely pay franchise tax ($300 — from the master company, $75 — for each series per year)
- File annual reports with government authorities
- Update beneficial owner information in FinCEN
Q/A
How quickly can a Series LLC be registered?
With all necessary documents available, the company can be ready to operate in one business day. For urgent registration, processing within several hours is possible for an additional fee.
What tax advantages does a Series LLC provide?
The key taxation principle of a Series LLC is tax neutrality. This means the company can choose a tax regime for each series according to specific objectives and business characteristics. It is important to note that income received from US sources will be subject to taxation under US law regardless of the chosen regime. In international structuring, Series LLC allows efficient management of tax obligations and avoidance of double taxation.
Can a bank account be opened for a Series LLC?
Yes, a bank account can be opened for a Series LLC in both US banks and financial institutions in the UK, Singapore and Hong Kong. Separate accounts can be opened for the master company and for each series.
How to prepare tax reporting for a Series LLC?
Tax reporting depends on the chosen tax regime. For the master company and series choosing partnership regime,form 1065and K-1 for each participant are filed. For series choosing corporation regime, form 1120 is filed with separate profit tax calculation.
Related
На русском: series-llc
personal review
Discuss your case
Message us now or leave a contact. A private.law specialist will review the context and come back with the next step.
Leave a contact
Short context is enough.