What is a Series LLC?
A Delaware series limited liability company is an LLC that essentially acts as an umbrella with other LLC's operating under it.
Series LLCs are a newer entity type and are not available in all states. In fact, Delaware was the first state to make Series LLCs available as an entity type option.
Types of Series LLCs
There are two types of Series LLCs available in Delaware:
Protected Series LLC
Protected Series are the original type of Series LLC in Delaware.
Forming a Protected Series requires only one filing with the state of Delaware and only one Certificate of Formation will cover all entities within the series. The Certificate of Formation will contain additional information beyond a typical single LLC filing, noting that the LLC has the right to create additional series within the entity.
When the LLC members wish to create a new series, a change of the operating agreement is all that is required to do that. Each series can have its own unique name.
If a Certificate of Good Standing is required, one may only be obtained for the Protected Series LLC (original master) but may not be obtained for each of the series under it.
The annual franchise tax for the Protected Series LLC is $300 for the master Series LLC. There are no additional taxes for each series beneath it.
Registered Series LLC
Registered Series LLCs are the newest available entity type in the state of Delaware.
Registered Series LLCs differ from the Protected Series LLCs in that a new filing with the state of Delaware is required to create a new series under the master entity. A new series cannot be created with a change of the operating agreement.
Additionally, Registered Series LLCs must stick to a naming convention. Series beneath a Registered Series LLC must all contain the master LLC's name.
If a Certificate of Good Standing is required, one may be obtained for the master or for the series beneath it. That said, if the master LLC is out of good standing, all the series under the master will be unable to obtain a Certificate of Good Standing.
The annual franchise tax fee for a Registered Series LLC is $300 plus $75 for each series beneath it.
How are Series LLC's Set Up and Operated?
Series LLCs operate like corporations with various subsidiaries. As mentioned above, Protected Series LLCs are able to form a new series with a change of operating agreement while a Registered Series LLC must submit a new filing to the state of Delaware.
Each series operates as a separate entity. This means each will have its own name, bank account, records, books, etc. It is important that these remain separate for legal purposes, as you want the series to be viewed separately should there be any litigation. This helps to ensure the protection of the other LLCs in the series.
Why Form a Series LLC in Delaware?
Delaware was the first state to enact legislation allowing the creation of Series LLCs in 1996 and has been the model for other states that have begun offering this entity type.
Additionally, any issues that arise regarding a Series LLC would be handled in the Delaware Court of Chancery. This court is unique to the state of Delaware and is designed to handle corporate matters. Its non-jury trial and swift decisions combined with the favorable corporate law in Delaware allow issues to be resolved without the hassle of typical litigation.
Because this is a newer entity type, many business owners who choose to form a series LLC choose to form it in Delaware because of the Court of Chancery's expertise in corporate legal matters.
Additionally, because Series LLCs are relatively new, it is unclear how litigation would be handled in other states and how Series LLCs would be viewed in those courts.
What are Series LLC's used for?
Series LLCs were first used by the mutual fund industry and are now used by many industries, most commonly in property management, where individual real estate assets may be their own LLC under the umbrella of the property management company as a whole.
Series LLCs are often used by any type of business that has several related but different product lines.
States and Territories Where You Can Form a Series LLC
As of November 2019, Series LLCs can be formed in the following states and territories: Alabama, Delaware, the District of Columbia, Illinois, Indiana, Iowa, Kansas, Missouri, Montana, Nevada, North Dakota, Oklahoma, Tennessee, Texas, Utah, Wyoming, Wisconsin, and Puerto Rico.
Additionally, some states (including California) do not offer series LLCs but allow you to register your series LLC from other states.
How to Form a Series LLC in Delaware
If you are interested in starting a Delaware Series LLC, you can form one today by contacting us at firstname.lastname@example.org. We have several package options for Delaware LLC formation and all of our packages allow for series options.
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