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The Corporate Transparency Act (CTA), which went into effect on January 1, 2024, requires certain entities to disclose their beneficial ownership information (BOI) to the Financial Crimes Enforcement Network (FinCEN). While traditional LLCs have clearer reporting obligations, BOI reporting for series LLCs presents a unique challenge due to their complex structure and lack of guidance from FinCEN. The end of the year is nearing, along with the due date for millions of entities, so professionals may not have the time to wait for further guidance.
Series LLCs Explained
A Series LLC is a special form of LLC that allows for the creation of separate “series” or divisions within a single LLC. Each series can have its own assets, liabilities, and business operations. Importantly, series within an LLC are treated as distinct entities for liability purposes, but how they are recognized for reporting or legal purposes varies by jurisdiction.
In Texas, for instance, a series LLC is either a protected series (formed before June 1, 2022) or registered series (formed on or after June 1, 2022). Protected series do not have specific filing requirements when created, while registered series require additional filings with the Texas Secretary of State, including a certificate of registered series and documents when winding up or terminating. Source: https://www.sos.state.tx.us/corp/formationfaqs.shtml#LLC1
Corporate Transparency Act Requirements
The CTA applies to “reporting companies,” which are entities created by filing documents with a state secretary or similar authority under state law. Series LLCs raise the question of whether each individual series within the LLC must file as a separate reporting company or whether the parent LLC alone is responsible for submitting a BOI report.
For an entity to be classified as a reporting company under the CTA, it is critical to assess whether the individual series were created by the filing of a document with the relevant government authority.
BOI Reporting for Series LLCs in Texas: A Closer Look
Consider a series LLCs formed in Texas; the parent LLC is formed through the filing of Articles of Organization with the Secretary of State. Importantly, this filing is what establishes both the parent and any potential series under the parent’s structure. If the series LLC has filed for assumed names (doing business as or DBA) for its individual series, those filings do not arguably result in the legal formation of the series itself but merely indicate the use of a trade name.
In the case of assumed names, the mere filing of a DBA for a series may not meet the definition of a reporting company since it may not be considered “created” because of the filing. In fact, the Texas Secretary of State FAQs says, “The secretary of state does not have a specific form to be used to form a series LLC.” (Series LLCs; Question 2)
However, the distinction between protected series and registered series is where reporting obligations should be considered:
- Protected Series (Formed before June 1, 2022): Protected series in Texas are not required to submit any separate filings to the Secretary of State when they are created under the umbrella of the parent LLC. Since no specific filing is required for the formation of these series, it could be argued that the parent LLC alone is the reporting entity under the CTA since it was the only one that filed a document that resulted information. Professionals handling protected series may choose to report under the parent LLC and list the individual series as DBAs under the parent LLC’s beneficial ownership information report.
- Registered Series (Formed on or after June 1, 2022): Registered series have additional filing requirements, including a certificate of registered series filed with the Texas Secretary of State. These series are formally registered and have distinct filing obligations that could arguably make them separate reporting companies under the CTA. However, do these filings result in the formation of the series? While FinCEN has not yet provided explicit guidance on this matter, entities managing registered series may consider filing separate BOI reports for each separate series as they are created by filing the certificate of registered series.
The Lack of FinCEN Guidance
As of now, FinCEN has not provided specific guidance on whether each series within a series LLC must file separate BOI reports or if the parent LLC can file on behalf of all series. Given the complexity of this issue, and the significant variation between different states that have series LLC statutes, it is very likely that guidance may not be released on this topic for some time, if at all. This lack of guidance leaves professionals handling series LLCs with some uncertainty, and with a looming December 31, 2024 deadline for entities created prior to January 1, 2024.
While the logical approach may vary based on the specific characteristics of each series (jurisdictional specifics, type of entity, method of formation, etc.), compliance will ultimately depend on differing regulatory interpretation and jurisdictional nuances, and ultimately is subject to significant interpretative uncertainty.
Conclusion
Until more clarity is provided, it’s important for legal and other professionals to carefully evaluate the filing status of each series within a Series LLC, consider whether the series was created through formal filing, and stay informed on evolving FinCEN guidance. Additionally, state-specific nuances, such as Texas’s rules for assumed names and the distinctions between protected and registered series, must be taken into account to ensure proper reporting under the CTA. It may be a good idea to incorporate language into CTA engagement letters to be certain that clients are aware that reporting requirements may change based on FinCEN guidance.
Disclaimer: This blog article is intended for informational purposes only and does not constitute legal advice. For advice on specific legal issues, please consult with a qualified attorney.