Is a Series LLC right for me?
Delaware authorized the creation of the Series LLC in 1996 to establish one or more “series.” Think of a “series” as a subsidiary, but without all the formalities and administrative burdens that go into creating a subsidiary. A single “master” LLC compartmentalizes different “cells” or “series” within the master LLC. Each “series” can own its own LLC property independent and separate from the other series in the LLC. Each “series” can have its own business or investment objectives. Additionally, the debts, obligations, and liabilities of a particular “series” would only be enforceable against the assets of that series and not against the assets of the LLC generally or the assets of any other series in the LLC. See DLLC Act § 18-215(a). Each series may have separate members (a.k.a. LLC owners) and managers and pursue different business interests.
As a result, a Series LLC allows its creators to accomplish diverse business objectives and manage different classes or groups of LLC owners. And, you can more easily segregate business assets for greater asset protection.
Since 1996, eight other states have added “series” provisions to their LLC Acts.
So, why are so few Series LLCs created? Because most states don’t recognize Series LLCs. This creates uncertainty around how a non-Series LLC state would treat the Series LLC, especially for businesses with operations outside of Delaware (and the other Series states). It’s possible such states would not recognize the limited liability protection of each series. As a result, the non-Series LLC states might allow third party creditors to enforce the debts, obligations, and liabilities of one series against the assets of the LLC generally and the assets of the other series in the LLC. This would completely frustrate the purposes around forming the Series LLC in the first place. It’s also unclear how a Series LLC should hold title in public records (i.e. real estate deed). It’s also unclear how a Series LLC should be treated for purposes of reporting and paying income taxes.
Ultimately, forming a Series LLC is not advisable until more states have added -“series” provisions to their LLC Acts.
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