Legal Question in Business Law in Maryland

Re: Business Formation: Delaware Serial LLC as multi-entity business structure?

You raise a number of good questions. Let's consider them one at a time.

I'm planning to start a business that will mainly operate in the field of IT consulting (on- and off-site software development, offshore software development, IT personnel recruitment etc.). The business will also have an e-commerce division(s) that will operate as online retailer.

Would Delaware Serial LLC (entity-within-an-entity concept) be an appropriate business structure to ensure holding/operating entity separation? Would Serial LLC be any different (liability-wise) than forming separate LLCs: one as a holding company and two other LLCs as IT consulting and E-commerce subsidiaries?

If costs are an important consideration for a new business, forming the LLC or LLCs in Delaware could result in additional expense. In addition to maintaining the entity or entities in Delaware, if the principal place of business is in Maryland, the business(es) would need to be registered in Maryland as well. Not only is the start-up expense ($100 each entity) an issue, but you should also consider the annual filing fee, which is now $300 per entity, in Maryland. That would, of course, be in addition to any annual maintenance fee in Delaware and in addition to any annual fee that a resident agent would charge (typically about $100 per year).

It looks like Serial LLC is cheaper to form, are there any caveats that would wipe out formation cost savings in the near future? Yes, franchise fee and agent fee have to be paid, but it just ~$100, so it is probably not the major consideration here.

IT consulting division would mainly operate in DC Metro, but possibly in other states, too, and E-Commerce division would operate. on the Internet? I guess this yet another question: what state an E-commerce company is considered operating from? The state where it was formed in?

Yes, even if the business is conducted primarily on the internet, Maryland would be the appropriate state if that is where the principal office is located.

And, finally, will I need to register foreign LLC in each state I have at least one contract in?

Probably not. The business would have to register in each state in which it conducts more than occasional business. Usually a single contract would be considered occasional business (unless, perhaps, the contract forms a substantial portion of the firm's business). This is a gray area with lots of plusses and minuses, so you should talk with an attorney before taking action.

If I can be of assistance, please feel free to contact me.

Richard S. Stolker

301-294-9500

[email protected]

Re: Business Formation: Delaware Serial LLC as multi-entity business structure?

The problem with serial LLC's is that they are not necessarily going to be recognized as separate entities in states other than DE, because the other states' LLC laws do not provide for such recognition. The Series itself would be recognized as separate from its member(s), but each internal LLC in the series may not be recognized as seperate from the series and from each other because it is not separately chartered by DE. If you are looking for certainty, this is not the way to go.