Understanding the Series LLC

At a Glance

• A Series LLC is a cost-efficient legal structure that allows multiple SPVs to operate under a single master entity, with each series treated as a separate legal entity for legal and tax purposes.

• Series LLCs build on the traditional LLC framework, combining limited liability with pass-through tax treatment while allowing multiple, distinct “series” within a single master LLC.

• Delaware was the first state to permit Series LLCs, and several other states have since followed, making this structure particularly useful for deal-by-deal venture investing.

• The ability to create distinct series quickly under a single master entity makes Series LLCs well-suited to SPVs formed to invest in startups on a transaction-by-transaction basis.

• Sydecar leverages a Series LLC structure to streamline SPV formation, enabling rapid deal execution and lower formation costs for managers.

Understanding LLCs as the Foundation

A limited liability company (LLC) is a flexible business structure created under state statute. Because LLCs are state-law entities, each state sets its own rules and regulations regarding formation, governance, and operation.

Key characteristics include:

• Limited liability: LLC owners, known as “members,” are generally liable only up to the amount of their economic investment in the LLC. Their personal assets are usually protected from the company’s debts and obligations.

• Alternative to partnerships: Before LLCs became widely available, investors commonly used general partnerships or limited partnerships. In those structures, at least one partner was required to have unlimited liability, meaning that partner could be held personally liable for the partnership’s debts.

LLCs were designed to offer a more modern alternative: limited liability combined with flexible governance and tax treatment.

LLCs as Flow-Through Tax Vehicles

By default, an LLC is treated as a pass-through (flow-through) entity for U.S. federal income tax purposes, typically taxed as a partnership. This means:

• The LLC determines the amount, timing, and classification of income, gains, losses, and deductions.

• These items are then allocated to the members, who report them on their own tax returns.

• The LLC itself generally does not pay federal income tax; instead, tax liability is borne by the members.

This structure combines:

• The legal protection of limited liability, and

• The tax advantages of partnership-style pass-through treatment.

That combination makes LLCs a natural fit for investment vehicles, including SPVs.

Flexibility of LLC Membership

LLCs offer significant flexibility in who can become a member. Membership interests can be held by:

• Other LLCs

• Partnerships

• C corporations

• S corporations

• Qualified accounts (such as IRAs)

• Other eligible entities, depending on applicable law

For SPV investors, this flexibility allows them to hold their interests in an LLC in a way that aligns with their broader portfolio structure, tax profile, or institutional requirements.

What Is a Series LLC?

Certain states allow the formation of a special type of LLC called a Series LLC.

Under this structure:

• A single “Master LLC” is formed and registered with the state.

• Under that Master LLC, one or more Series LLCs can be created.

The Master LLC:

• Pays the applicable fees and complies with state requirements at the master level.

Each Series LLC under that master:

• Is treated as independent from every other series.

• Is protected from adverse judgments against any other series formed under the same Master LLC.

• Cannot be held responsible for the liabilities of another series under that Master LLC.

States may set their own rules about:

• How many series can be established under a single Master LLC.

• What formalities are required to ensure separateness and protection among series.

Because a new series can often be created faster and with less overhead than forming a standalone LLC, this structure is particularly cost-efficient for investors who form LLCs to invest in startups on a deal-by-deal basis through SPVs.

LLCs, Series LLCs, and SPVs

LLCs are a powerful way to customize business and investment structures and are especially useful in venture investing.

In this context:

• A traditional LLC can serve as the entity that holds a single SPV or fund.

• A Series LLC allows a manager to establish multiple SPV series under a single Master LLC, with each series treated as a distinct legal entity for tax purposes.

Sydecar uses a Series LLC structure to establish SPVs and funds because it provides:

• Time efficiency: New SPV series can be formed quickly with the Master LLC in place.

• Cost efficiency: The Master LLC centralizes certain state-level fees and filings, reducing incremental costs per deal compared to forming separate LLCs for every SPV.

• Operational consistency: Each series can follow standardized documentation and processes while still being segregated from other series.

Combined with Sydecar’s infrastructure, this structure makes it possible for managers to spin up SPVs in minutes with a reasonable cost ratio, without sacrificing legal and tax integrity.

Benefits of the Series LLC

The Series LLC structure offers several important benefits in the venture and SPV context:

• Cost Efficiency

  • A single Master LLC is registered with the state and pays the applicable fees on an ongoing basis.

  • Distinct Series LLCs can be created under that master, which is more efficient than forming full standalone entities for each SPV.

• Limited Liability

  • In an LLC, a member can be held liable for the entity's debts and obligations only up to the amount they committed.

  • In a Series LLC, each series is intended to be insulated from the liabilities of other series formed under the same Master LLC.

• Tax Flexibility

  • By default, LLCs are taxed as flow-through entities, so income and expense items flow directly through to members, preserving their tax attributes.

  • Series LLCs are designed to retain this pass-through character at the series level, subject to federal and state tax rules.

• Membership Flexibility

  • Any type of eligible entity can be a member of an LLC, including other LLCs, partnerships, C corporations, S corporations, and qualified accounts such as IRAs.

  • This gives SPV investors the flexibility to participate as members in a way that aligns with their own structures and constraints.

Used thoughtfully, Series LLCs offer venture managers a scalable, cost-efficient framework for forming SPVs on a deal-by-deal basis. When paired with Sydecar’s automated infrastructure, the Series LLC structure helps emerging managers and experienced GPs alike launch SPVs quickly, maintain clear series-level separation, and focus on what matters most: sourcing and supporting exceptional companies.